Insurers See Silver Lining In Antitrust Report

WASHINGTON–After a federal study commission suggested Congress consider removing antitrust exemptions for insurers, trade groups looked at their recommendations and reacted with a positive spin.

According to the insurance organizations' reading, the Antitrust Modernization Commission report released Tuesday is suggesting Congress review the limited antitrust exemption the industry enjoys under the McCarran-Ferguson Act, not repeal it.

Dennis Kelly, a spokesman for the American Insurance Association, said “the report contains some good news: It does not specifically recommend repeal of the McCarran-Ferguson exemption.”

However, at least one of the 12 commission members–John Shenefield, a lawyer at Morgan Lewis Washington who was also in charge of antitrust enforcement in the Carter administration–advised there should be no hesitation in repealing the McCarran-Ferguson Act that exempts insurers.

Mr. Shenefield wrote that while the president and Congress should create another commission of experts to evaluate antitrust exemptions and immunities, “the repeal of some of the most unfortunate, including particularly the McCarran-Ferguson Act, the Shipping Act exemption, and the Export Trading Company Act and Webb-Pomerene exemptions should not be delayed…”

According to the Property Casualty Insurers Association of America (PCI), the call for Congress to review the exemption “reflects a misunderstanding of the exemption and what it allows.”

The National Association of Mutual Insurance Companies focused on a comment in the report by the full commission that it is unnecessary to protect small insurers by exempting the sharing of information because regulators and the courts are unlikely to call such sharing anticompetitive unless price fixing is determined.

But, says Robert Detlefsen, NAMIC's vice president of public policy, such a statement by the commission makes them “unduly confident that courts with little or no experience adjudicating insurance issues would be able to distinguish clearly between 'pro-competitive' cooperative insurance practices and those that have 'anticompetitive effects.'”

Mr. Detlefsen explained, “We are not nearly as optimistic about this prospect as is the commission.”

Moreover, Mr. Detlefsen said, “the full report, and comments by Commissioner [Jonathan] Jacobson, [a New York antitrust lawyer], seems oblivious to the negative consequences for both insurers and consumers that would result from the legal uncertainty and expense of private antitrust litigation to settle such questions, whose inevitability they acknowledge should the limited insurance antitrust exemption be repealed.”

PCI said in its statement that, contrary to what the commission said in the report, “existing state and federal laws expressly prohibit insurers from collusion and theexemption only allows insurers limited authority to share specific lossdata that ultimately makes the market more competitive by providing small and medium-sized companies the ability to compete with larger insurers.”

Defending the exemption, PCI said the organization “believes the law positively impacts consumers and will aggressively advocate for its retention.”

“To use the tests outlined in the report, McCarran does meet the goal ofconsumer welfare, which is achieved through competition,” explained Mike Koziol, PCI's assistant vice president and counsel.

“McCarran allows insurers, big and small, to access information to correctly make their own determinations as to the price of their product,” said Mr. Koziol.

He added, “PCI continues tomaintain that insurance is unique: The ultimate price of the product isknown only in the future; past information sharing is critical so thatprojections as to the correct future price can be made.”

Mr. Kelly at AIA added that one of the report's “bedrock” conclusions is that the free market is the foundation of the U.S. economy,” and “neither the government, nor private actors should undermine free market competition.”

Mr. Kelly also noted that the report “fails to make the connection between government regulation and antitrust enforcement.”

He explained, “In the property-casualty insurance world, states have imposed government price controls instead of allowing the free market to determine the range of insurance prices that competitors offer.”

Ironically, he said, were Congress to repeal McCarran-Ferguson, the result would be a multilayered morass of state and federal regulation and antitrust enforcement that could result in fewer areas for the free market to thrive.

“That, clearly, runs counter to the commission's conclusions,” Mr. Kelly said.