State Lawmakers Defend Insurer Antitrust Exemption

The National Conference of Insurance Legislators has urged the U.S. Senate Judiciary Committee to “proceed with caution” in considering legislation to repeal the insurance industry's limited antitrust exemption.

At issue is S.618–the Insurance Industry Competition Act of 2007–eliminating the McCarran-Ferguson Act's exemption for insurers, which NCOIL warned would have negative consequences.

S.618 was introduced by Senate Judiciary Committee Chair Sen. Patrick Leahy, D-Vt., with cosponsors including Sen. Trent Lott, R-Miss.; Mary Landrieu, D-La.; Harry Reid, D-Nev.; and Sen. Arlen Specter, R-Pa. Copies of the letter were sent to the bill's sponsors.

While commending the committee's intentions, the letter notes that the McCarran-Ferguson exemption is “not a loophole through which bad actors can evade antitrust requirements. Nothing in the act restricts federal prosecutors from enforcing federal laws related to boycotts, intimidation, or coercion.”

The April 6 letter–signed by NCOIL's president, Michigan State Sen. Alan Sanborn, R-Richmond Twp.–also states that nothing in the act precludes a state attorney general from prosecuting wrongdoers under existing state laws, as evidenced by the recent “tenacity” of the New York attorney general's office in exposing bid-rigging and account-steering by brokers and insurers.

Regarding competition, the letter expresses concern that S.618 would endanger the sharing of loss history and other information that allows smaller and more regional insurers to operate effectively against large companies.

“Absent these more moderately sized carriers,” the letter stated, “insurance markets would be less responsive to the availability and affordability needs of consumers–particularly in strained markets.” Prices would go up, not down, the letter predicts.

(At a recent hearing, Sen. Lott suggested that an exemption from the proposed bill might be worked out for small insurers–a compromise rejected by state regulators. See accompanying story on page 8.)

Sen. Sanborn also wrote that should the Federal Trade Commission enforce antitrust requirements, as S.618 would allow, “insurance companies would fall prey to a complicated and very likely contradictory climate of abiding by both state and federal laws.”

Such confusion, he said, “would destabilize insurance markets that rely on predictability to gauge risks and price products,” and likely would result in years of costly litigation.

Finally, the letter recognized that S.618 would call into question the operations of state guaranty funds and residual market mechanisms. These structures, the letter said, together with laws carefully tailored to suit specific state markets, “safeguard the needs of consumers most at risk.”

NCOIL said it distributed a similar letter to House Judiciary Committee Chairman John Conyers, D-Mich. (who has jurisdiction over companion bill H.R. 1081); Rep. Peter DeFazio, D-Ore. (sponsor of H.R. 1081); and co-sponsors Rep. Rodney Alexander, R-La,; Rep. Bobby Jindal, R-La.; Rep. Charlie Melancon, D-La.; Rep. Gene Taylor, D-Miss.; and Rep. Walter B. Jones Jr., D-N.C.

The NCOIL letter drew praise from Neil Alldredge, vice president for state and regulatory affairs at the National Association of Mutual Insurance Companies.

“Such a proactive effort is an example of reasonable thinking, rather than a knee-jerk reaction by those who seek to punish the insurance industry,” he said. “NCOIL correctly understands the grave, unintended consequences that would befall insurance consumers as well as the insurance industry by this misguided legislation.”

In a letter to Senate Judiciary Committee Chair Patrick Leahy, NCOIL expressed concern that S.618:

o Misinterprets the role of states in enforcing antitrust protections.

o Would jeopardize insurer practices that promote available and affordable coverage.

o Exposes insurance markets to uncertainty and litigation.

o Creates an environment that inadvertently disadvantages consumers most in need.