Sen. Fitzgerald Says Broker Fee Scandal May End Antitrust Exemptions

November 17, 2004

A bulletin from the office of lame-duck Illinois Republican Sen. Peter G. Fitzgerald indicates that: "It might be time to use federal antitrust enforcement to ensure that the insurance brokerage industry remains free, competitive, and healthy for consumers."

Fitzgerald said Congress might consider amending the antitrust provision in the McCarran-Ferguson Act of 1945 as it relates to insurance brokers. The act currently exempts the business of insurance from most federal antitrust laws. He also said Congress might consider allowing the Federal Trade Commission to study insurance, and he called for increased transparency in the industry.

Fitzgerald made the comments as he was chairing a hearing yesterday of the Governmental Affairs subcommittee on Financial Management, the Budget and International Security, the first Congressional airing of the issues surrounding well-publicized state investigations into insurance brokerage practices (See IJ Website Nov.16).

"My study of this insurance brokerage controversy convinces me that there is a federal role -- the time honored federal role that guarantees competition and fights the mischief of undue market concentration," Fitzgerald stated. Both New York Attorney General Eliot Spitzer and Conn. Attorney General Richard Blumenthal, who are conducting investigations of the insurance industry, testified at the hearing.

Fitzgerald said that state regulation might be inadequate to fully address problems related to "contingent commissions" and other practices that might be harming the integrity of the insurance industry. "The system of state regulation has worked well for many purposes," he noted. "But state regulation purporting to govern global conduct may not always perfectly detect the abuses of daunting market power. I believe it is time to revisit the antitrust exemption of the McCarran-Ferguson Act, and to make clear that vigorous federal antitrust enforcement can and will reach the kind of anticompetitive conduct on the part of insurance brokers alleged in Attorney General Spitzer's lawsuit."

He indicated that Congress might reverse a 1980 prohibition it placed on the FTC to study the insurance industry. "Declaring the FTC categorically unsuited even to peer at the insurance industry ignores the reality of national, indeed global, insurance markets, increasing consolidation in some market segments, and surges of centralized coercion that may not readily appear on the regulatory radar of any single state," Fitzgerald stated. "If we profess to favor free markets and other robust competition, then we must equally favor their civilizing predicates: antitrust law and transparency."

Fitzgerald stressed that federal antitrust powers are most needed to prevent abuses that stem from large market concentrations. He noted that Marsh & McLennan and Aon alone control an estimated 70 percent of the insurance brokerage market for large corporate buyers of insurance.

"I believe it is no coincidence that Attorney General Spitzer first sued the largest market player in insurance brokerage," the Senator stated. "And I believe it is no coincidence that when Attorney General Spitzer first investigated contingent commissions pursuant to his vast powers under New York's Martin Act, he appears to have discovered anticompetitive -- and even criminal -- abuses orchestrated not by just any random insurance broker, but an insurance broker that controlled 40 percent of its target market."