Antitrust Exemption Repeal Proposed In Senate, House Bills

Companion legislation, also bipartisan, was introduced in the House at the same time, mostly by representatives from coastal states.

The actual language of the bill, "The Insurance Industry Competition Act of 2007," S. 618, was not available Thursday.

It is expected, however, to be even stronger than legislation introduced last September in the Senate by Sen. Arlen Specter, R-Pa., then chairman of the Senate Judiciary Committee, and Sen. Patrick Leahy, D-Vt., then ranking minority member of the committee.

That bill would have given the Federal Trade Commission oversight authority over insurance industry compliance with the McCarran-Ferguson Act. But in a statement released by Sen. Leahy, the new bill will give oversight for antitrust compliance over the industry to both the FTC and the Justice Department.

"Federal oversight would provide confidence that the industry is not engaging in the most egregious forms of anticompetitive conduct, price-fixing, agreements not to pay and market allocations," Sen. Leahy said.

"Insurers may object to being subject to the same antitrust laws as everyone else, but if they are operating in an honest and appropriate way, they should have nothing to fear," he added.

Other co-sponsors include Sen. Trent Lott, R-Miss, who is the minority whip, and Sen. Harry Reid, D-Nev., the Senate majority leader.

The insurance industry immediately condemned the legislation.

Officials of several industry trade groups said that a debate on amending McCarran-Ferguson should be conducted only within the context of examining the entire system of insurance regulation, with one trade group official specifically suggesting a debate on creation of an Optional Federal Charter.

Moreover, both supporters and opponents of the OFC within the industry voiced particular concern about the impact on small insurers.

Specifically, Marliss Browder, senior federal affairs director at the National Association of Mutual Insurance Companies, said the legislation, if enacted, "could threaten the viability of small insurers and lead to reduced competition, higher insurance costs and less availability for some high-risk coverages for consumers." NAMIC also opposes the OFC.

Joel Wood, senior vice president, government affairs, for the Council of Insurance Agents & Brokers, which supports the OFC, noted: "To the extent that these members seemingly believe the McCarran-Ferguson Act is the 'holy grail' of insurance regulation, I think they'd be surprised at the number of large insurers who would gladly give the entire act up to get the option of a federal charter."

He added, "A reasonable debate about the scope of antitrust immunity is one thing, but unfortunately this legislation seems aimed at punishing the industry."

Mr. Wood explained that there are "lots of positive things legislators could do about the coastal insurance crisis, but this isn't one of them."

"And we at the Council believe that enactment of this legislation would indeed hurt smaller and regional carriers, specifically if there are no accommodations for the needed services of the Insurance Services Office, for example," Mr. Wood said. "They help facilitate insurer access to markets. Limiting them would do violence to many markets."

The Senate bill, S. 618, had been expected, but the rank of its sponsors added to industry anxiety.

Insurers have replaced the oil industry in the rhetoric of Congress as the source of all domestic ills as a result of its role in killing legislation last year that would have established an alternative claims-handling process for those exposed to asbestos in the workplace, and for the slowness in the recovery of Louisiana and Mississippi from the ravages of Hurricane Katrina.

Concern about the cost of homeowners' insurance going forward has spread to all coastal states, including Florida. As a result, members of Congress have introduced a flurry of bills in the first two months of the current Congress in order to potentially pen the property-casualty industry into a sort of latter-day Alamo.

Legislation has been introduced in both the House and Senate this week that would mandate the industry create a national clearinghouse available to all auto dealers of all vehicles totaled and ruled junk by insurers. Legislation has also been introduced in the House that would provide all-perils homeowners' policies under the National Flood Insurance Program.

Moreover, Sen. Lott, a co-sponsor of the McCarran-Ferguson repeal bill as well as the salvage legislation, recently commented that he wants to have a look into the effective tax rates insurers pay–rates he believes are lower than for other industries. Since life insurers do not get such treatment he presumably means property-casualty insurers.

Last year, Sen. Lott placed a provision appropriating funds for the Department of Homeland Security to pay for a study of alleged anticompetitive industry practices he believes took place as insurers handled claims from Hurricane Katrina.

Both Sen. Lott and Rep. Gene Taylor, D-Miss., another prime critic of the industry in the aftermath of Hurricane Katrina, sued State Farm for its handling of claims for damage to their homes from the hurricane. Their lawyers say the claims have been settled by the parties.

Rep. Taylor criticized the industry intensely last week in testimony before the House Financial Services Committee on housing problems created by Hurricane Katrina. He is also expected to be a star witness at a hearing on insurance industry behavior in the aftermath of the storm to be held by the Oversight Subcommittee of the FSC Committee, Feb. 28.