NAIC Head Nixes Antitrust Safe Harbor

The president of the National Association of Insurance Commissioners last week ruled out support by state regulators for a safe harbor for small insurers from antitrust laws in a post-McCarran-Ferguson Act world.

In comments after a speech to life insurance agents meeting here, Walter Bell–who is also insurance commissioner of Alabama–said it was essential that small insurers have access to claims and other data to remain competitive.

Earlier this month, Sen. Trent Lott, R-Miss.–who is championing a bill that would strip the insurance industry of its federal antitrust exemption–suggested that concerns about the impact on smaller insurers might be eliminated by simply allowing them to continue sharing data.

However, Mr. Bell said removing large insurers from the mix would make it too expensive for small insurers to access industrywide data, and also make it impossible for private entities that collect and provide shared data to maintain their databanks.

Mr. Bell said continued state leadership in insurance regulation is the way to go. He made his comments at a Capitol Hill event for the presidents-elect of the National Association of Insurance and Financial Advisers and selected local associations.

Noting the quick response of state insurance regulators to a tornado a year ago in Enterprise, Ala., in which 10 children were killed when a school cafeteria collapsed, Mr. Bell said: “It didn't take me long to figure out that states are the best place to regulate insurance–not Washington, D.C.,” adding that “state-based regulation is the best system.”

He acknowledged “there is strong momentum” in the U.S. Senate for legislation repealing McCarran-Ferguson.

He said the primary sponsors–including Sen. Lott; Sen. Pat Leahy, D-Vt., chairman of the Senate Judiciary Committee; Sen. Arlen Specter, R-Pa., ranking minority member of the Judiciary panel; and Sen. Harry Reid, D-Nev., Senate majority leader–have the power to authorize committee action on the bill at any time.

He said a number of Senate committees have held hearings on the issue, noting that the bill has strong support in the House, although no hearings have been held in that chamber.

He also said insurance commissioners would make themselves available to members of Congress to discuss the issue at any time. The first thing they would tell Congress, he said, is that a “convergence of issues”–notably claims management and allegations of illegal activities by insurance brokers–and not antitrust violations, prompted members to introduce the McCarran-Ferguson Act repeal legislation.

However, he said, “the system worked.” Citing huge settlements imposed on Marsh and other major brokers as a result of an alleged bid-rigging scandal, he said “existing federal and state laws have proven sufficient to combat alleged wrongdoing in the insurance industry. Congress should carefully examine the implications of McCarran-Ferguson before repealing” the exemption.

“Act once, but consider it twice” before repealing McCarran-Ferguson, he said, adding that “there is no smoking gun” that demands repeal of McCarran-Ferguson.

Mr. Bell also said that a number of other bills imposing additional oversight and responsibilities on insurers have been introduced as a result of the criticism of the industry's handling of claims from Hurricanes Katrina and Rita.

However, he added, “the stars are aligned” in defense of the antitrust exemption, meaning that all components of the insurance industry have voiced support for McCarran-Ferguson.

“Ironically,” he said, “the McCarran-Ferguson repeal legislation has taken the focus totally away from supporters of the optional federal charter.”

He also defended the industry's handling of claims resulting from Hurricanes Katrina and Rita. Asked to respond to comments by Sen. Lott at a recent hearing that the industry's conduct in handling those claims was “outrageous, arrogant and mean-spirited,” and that Mississippi Attorney General Jim Hood had “a lot of evidence of misconduct and fraud” by State Farm, Mr. Bell said he had talked to many chief executive officers of companies insuring Mississippi homeowners, and “they did the right thing.”

“They went overboard to protect the consumers in handling claims,” Mr. Bell concluded.