Insurers, Producers Man Battle Stations In Fight To Save Antitrust Exemption

The two-page bill is far different than similar legislation introduced last September by Sens. Arlen Specter, R-Pa., and Patrick Leahy, D-Vt.–then chairman and ranking member, respectively, of the Senate Judiciary Committee.

The two have since changed places with the Democrats' takeover of the Senate, but both joined with Sen. Harry Reid, D-Nev., Senate majority leader, and Trent Lott, R-Miss., Senate minority whip, to introduce the new bill, which would provide the Federal Trade Commission and the Department of Justice with joint antitrust enforcement authority over the industry.

Companion legislation has also reportedly been introduced in the House.

Of particular concern to insurance lobbyists is that the legislation provides no guidance as to when or how federal agencies are to tell the industry how they will enforce the law. Nor does the legislation provide–or require the agencies to provide–any safe harbors that would allow, for example, sharing of loss data or dissemination of uniform forms. Last year's legislation provided such safe harbors.

"This new version of the bill is a radical divergence from the legislation introduced just last year," said Charles Symington, senior vice president for government affairs and federal relations at the Independent Insurance Agents and Brokers of America.

"By eliminating two crucial safe harbors protecting standardized forms and the collection of past historical loss data, this bill will be a disaster for insurance consumers and the competitiveness of the market, and will disproportionately impact regional insurers and independent insurance agents," he added.

The bill's apparent lack of protection for insurer cooperation on policy language and sharing of data presents particular challenges to organizations such as the Insurance Services Office.

"The property-casualty business is very competitive, and ISO provides information that actually facilitates competition, which ultimately benefits policyholders," said Steve Noceti, vice president of government relations at the Insurance Services Office in Jersey City, N.J.

"We've had a Washington office for over 30 years, and we're always in the mix in providing information, data and expertise to various federal agencies," Mr. Noceti noted.

When asked about reports that ISO was considering hiring a lobbyist to represent its interests in Washington, he said that "ISO steadfastly does not take policy positions on legislation or regulatory issues. However, we periodically review whether our resources are sufficient to put a face on ISO, as far as explaining what we do, how we do it, and how our work helps consumers."

Ann Spragens, general counsel for the Property Casualty Insurers Association of America, termed the legislation "draconian," warning that "it will lead to unintended harm to consumers by undermining solvency and competition, rather than increasing it."

She said "all but the absolutely largest insurance companies–perhaps only the top 5-to-10 percent–might still be able to produce statistically credible data under this legislation, but even they might not have the appropriate information for all the products and specific markets they write for."

She also warned it might add another tool by which plaintiffs' lawyers could compel insurers into unfair settlements of claims by threatening to take their dispute to the FTC. "Given that the legislation introduces uncertainty as to how the FTC will interpret 'unfair' methods of competition, it may increase the cost of settlements," she said. "The result will be increased costs for consumers and fewer insurers to choose from."

Patricia A. Borowski, senior vice president of the National Association of Professional Insurance Agents, said that in addition to subjecting the insurance industry to federal antitrust laws, the legislation would also replace McCarran-Ferguson's specific grant of insurance oversight to the states with a "state action doctrine" that will open the door to a big increase in litigation of insurance-related matters.

Officials of several industry groups said that a debate on amending McCarran should be conducted only within the context of an examination of the entire system of insurance regulation, with one official specifically suggesting a debate on creation of an optional federal charter.

"If a healthy debate about modernizing insurance regulation–for example, as called for in optional federal charter legislation–came as a result of this legislation being introduced, we would welcome such a debate," said Dennis Kelly, a representative for the American Insurance Association.

He also argued that McCarran-Ferguson provides a narrow exemption from federal antitrust laws that is "only triggered when a state has created laws to regulate the business of insurance itself. McCarran does not exempt insurers from state antitrust laws–neither does it exempt insurers from heavy state regulatory scrutiny."

Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, which supports an OFC, said that "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."

Mr. Wood added that "a reasonable debate about the scope of antitrust immunity is one thing, but unfortunately this legislation seems aimed at punishing the industry." He said there are "lots of positive things legislators could do about the coastal insurance crisis, but this isn't one of them.

"We at the Council believe 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," he said. "They help facilitate insurer access to markets; limiting them would do violence to many markets."

Marliss Browder, a senior federal affairs director for the National Association of Mutual Insurance Companies, said the proposed legislation, if enacted, "would introduce a system of dual regulation to the insurance industry, ultimately leading to federal regulation of insurance."

She said the current law "promotes competition in the insurance marketplace by allowing companies to exchange critical data regarding losses and other factors, allows development of standardized policy language, facilitates participation and oversight of state guaranty funds, permits state control over liquidations, and enables the development and operation of assigned-risk plans."

Ms. Browder also contended that changes to the law "could curtail insurers' ability to exchange critical data, endangering market participation by smaller insurers and making it more difficult for carriers to enter new markets."

She explained that "threats to standardization of policy language would make it more difficult for consumers to compare policies and prices. Barriers to operation of assigned risk plans and guaranty funds would undermine the functioning of insurance markets."

McCarran-Ferguson has effectively ceded insurance regulation to the states since its enactment in 1945. That McCarran-Ferguson is the law of the land was specifically reiterated in the Gramm-Leach-Bliley Act of 1999. McCarran currently exempts the "business of insurance" from federal antitrust laws, to the extent that it is regulated by the states.

In a statement released when the bill was introduced, its chief sponsor, Sen. Leahy, said that "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."

He added that "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."