Two House Democrats last week introduced legislation that would repeal the antitrust exemption afforded insurers under the McCarran-Ferguson Act, but would retain the authority of states to regulate the industry.
A pair of insurance trade groups said the legislation is a "punitive bill hinging on a false premise," charging that its introduction was an unfair exploitation of the financial difficulties resulting from non-insurance activities at American International Group.
The Insurance Industry Competition Act of 2009 would repeal the exemption and give the Department of Justice and the Federal Trade Commission authority to apply antitrust laws to anticompetitive behavior by insurance companies.
The bill–not yet numbered as this story went to press–was introduced by Rep. Gene Taylor, D-Miss., and Peter DeFazio D-Ore.
The duo, who had introduced such legislation in earlier sessions of Congress, said they were counting on the controversy over bonuses paid to AIG employees to help advance their measure–this despite the fact that it was not AIG's insurance entities that were involved with the bonus brouhaha.
"Shouldn't the $170 billion bailout of AIG be the third and final strike to the 'business as usual' attitude toward the insurance industry?" they asked.
"We cannot tolerate these rampant abuses of the system at a massive cost to taxpayers," Rep. DeFazio said.
Rep. Taylor has been criticizing the insurance industry and proposing legislation that would change its regulation since Hurricane Katrina damaged his Bay St. Louis, Miss., home in 2005, prompting him to file suit against his insurer–State Farm–for what he thought was inadequate settlement of his claim. He later reached a settlement with State Farm.
He also recently introduced legislation that would add a requirement for the National Flood Insurance Program to offer wind damage coverage–a move the insurance industry universally opposes.
"This legislation is particularly important in light of the abuses by AIG, operating as if they were above the law," Rep. Taylor and Rep. DeFazio said. In fact, they charged, the current insurance exemption from antitrust laws gave AIG a free pass to become "too big to fail."
"Now the U.S taxpayers are on the hook to bail them out or risk even further turmoil in an already fragile economy," they said in a statement. "This legislation would close that exemption."
The pair said "the fact that the insurance industry is exempt from federal antitrust laws is outrageous." They said "AIG was gambling with people's life savings, and lost it all to speculative and shady transactions and contributed to the current crisis. We must insure this never happens again."
"Why is anyone surprised?" Rep. Taylor asked, charging that "insurance companies believe that they are above the law. When it comes to the federal laws, they are."
He said that "after Hurricane Katrina, insurance companies took advantage of the lack of federal oversight to bill the National Flood Insurance Program for wind damage."
"Taxpayers also paid for FEMA trailers, home repair grants, subsidized loans and tax deductions for property damage that insurance should have covered," he added.
In response, David A. Sampson, president and chief executive officer of the Property Casualty Insurers Association of America, said in a statement that the new legislation "uses the current controversy [over AIG] as a convenient cudgel to punish an entire industry, when in fact the existing crisis had nothing to do with the limited [antitrust] exemption that allows insurers to share loss data."
Marliss McManus, a senior federal affairs director at the National Association of Mutual Insurance Companies, echoed that sentiment. "It's disappointing and unfortunate that members of Congress are trying to exploit the troubles of AIG for their own personal crusade," she said.
Ms. McManus said troubles involving credit default swaps traded by AIG's Financial Products unit are in no way related to the McCarran-Ferguson Act's limited antitrust provision covering AIG's state-regulated insurance entities, and it appears that Rep. Taylor, and others, are confused about the act and how it works.
"To assert that the insurance industry is exempt from federal antitrust laws is completely inaccurate," she said. "The McCarran-Ferguson Act allows for a very narrow and limited exemption for certain activities–such as standardized policy language."
She said consumers have benefited from the law since 1945 because it has been responsible for creating a healthy and competitive market for insurers. "If the McCarran-Ferguson Act were repealed, consumers would suffer the greatest because it would reduce competition, increase insurance costs and reduce availability in the marketplace," she said.
Mr. Sampson said the McCarran-Ferguson Act does not hinder competition among insurers. "In fact, it promotes competition in the marketplace by putting small- and medium-sized companies on a level playing field with much larger competitors, and it creates efficiencies for insurers that mean savings and choice for insurance buyers," he noted.
"These savings are crucial to consumers during an economic downturn, and we call upon Congress to reject this misguided legislation," Mr. Sampson added.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.