What Is Plan B?

Industry groups put a positive spin on a grim report to Congress and the White House suggesting that insurers no longer deserve a limited exemption from federal antitrust law. With momentum building to pull the rug out from under the McCarran-Ferguson Act, it might be time to start thinking about Plan B. What will insurers do if their precious shield is stripped away? How would they adapt?

The Antitrust Modernization Commission offered little solace for insurers. The group shrugged off any concerns about losing particular McCarran benefits–such as insurer data sharing–suggesting such problems should be worked out in the courts.

“Like all potentially beneficial competitor collaboration generally…such data sharing would be assessed by antitrust enforcers and the courts under a rule-of-reason analysis that would fully consider the potential pro-competitive effects of such conduct, and condemn it only if, on balance, it was anticompetitive,” the report noted.

Indeed, the commission added, “insurance companies would bear no greater risk than companies in other industries engaged in data sharing and other collaborative undertakings.” The report warned that “to the extent insurance companies engage in anticompetitive collusion, however, they appropriately would be subject to antitrust liability.”

Insurer groups, perhaps whistling in the dark, did their best to counter the argument that courts would be the ideal place to sort out any aftershocks to the market.

The National Association of Mutual Insurance Companies said the commission appears “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.' We are not nearly as optimistic about this prospect as is the commission.”

Could you imagine the trouble and expense of litigating the industry's data sharing and standardization of policy language? It would be a field day for trial lawyers, without any apparent benefit to consumers.

Has anyone proven that insurer data-sharing undermines competition? To the contrary, such practices allow smaller carriers to compete with the big boys, providing more options for buyers and keeping prices lower than they would be in a purely Darwinian free market, where only the largest carriers–able to live off their own massive databases–could survive.

Is all this fuss really necessary? As the Property Casualty Insurers Association of America pointed out, “existing state and federal laws expressly prohibit insurers from collusion, and the exemption only allows insurers limited authority to share specific loss data that ultimately makes the market more competitive…”

The evidence appears to be overwhelming that revoking McCarran protections would be counterproductive for buyers, but the politically driven assertions of a growing number of hostile federal officials is unfortunately just the opposite.

I can't help but wonder whether insurance groups and individual carriers are starting to think about life beyond McCarran. If the worst happens, the industry could just stick to its guns, keep sharing data and defend their cooperation in court. But that route would be costly–prohibitively so if a wayward jury concludes that carriers have harmed consumers in some way, hitting them with triple-damages.

Or insurers could just jettison the industry's entire standard operating procedure, with all carriers left to fend for themselves. The jumbo insurers might get along just fine, although there are bound to be some transition problems. But the smaller fish would be at risk, and some could go belly up under the new competitive restrictions. That certainly wouldn't do anyone any good.

My advice? You had better have a Plan B in place!