Senator Patrick Leahy (D-Vt.), chairman of the Judiciary Committee, joined with Senate Democratic and Republican leaders this week to introduce a bipartisan bill that would strip the insurance industry of its limited antitrust exemption.
Leahy introduced the Insurance Industry Competition Act, along with the judiciary panel’s ranking member, Senator Arlen Specter (R-Pa.), Senate Majority Leader Harry Reid, (D-Nev.), and Senate Republican Whip Trent Lott, (R-Miss.).
Companion, bipartisan legislation has also been introduced in the House by Reps. Peter DeFazio (D-Ore.), Gene Taylor (D-Miss.), Bobby Jindal (R-La.), Charlie Melancon (D-La.), Rodney Alexander (R-La.), and Walter Jones (R-N.C.).
For the last six decades, insurance companies have enjoyed limited immunity from federal antitrust investigation and prosecution. The bipartisan bill introduced would give the Department of Justice and the Federal Trade Commission the authority to apply antitrust laws to anti-competitive behavior by insurance companies.
The proposal has drawn the opposition of insurance company and agent trade groups. The industry maintains that the immunity, among other things, allows insurers of all sizes to benefit from collected loss data which makes insurance pricing more accuurate and lowers costs for all insurers.
But the insurance industry and its practices have come under serious scrutiny along the Gulf Coast in the wake of Hurricanes Katrina and Rita, said Leahy. Leahy said there are concerns that insurers have been too often denying claims and delaying payouts to residents along the Gulf Coast.
“Federal oversight would provide confidence that the industry is not engaging in the most egregious forms of anticompetitive conduct – price fixing, agreements not to pay, and market allocations,” said Leahy. “Insurers may object to being subject to the same antitrust laws as everyone else, but if they are operating in an honest and appropriate way, they should have nothing to fear. American consumers and American businesses rely on insurance – it is a vital part of our economy – and they have the right to be confident that the cost of their insurance, and the decisions by their insurance carriers about which claims will be paid, reflect competitive market conditions, not collusive behavior.”
Pennsylvania’s Specter praised the legislation as a way to bring more competition into the industry.
“It is my hope that this legislation will bring the benefits of competition to the insurance industry and to consumers. Too many consumers are paying too much for insurance due to the collusive atmosphere that exists in the insurance industry. This has become a particular problem along the Gulf Coast, where insurers have shared hurricane loss projections, which may result in double-digit premium increases for Gulf Coast homeowners,” stated Specter. “I strongly urge members who are concerned about industry exemption from the antitrust laws and collusive insurance industry practices to support this important piece of legislation.”
Lott, whose own home was destroyed by Katrina, has been a harsh critic of the insurance industry’s response to that storm.
“One thing I learned coming out of Katrina is that the insurance industry is not subject to antitrust laws,” Lott said. “I’ve looked at the history, and there’s no explanation for why that is – for why antitrust and price fixing in this industry are not covered by the federal government. Our legislation corrects this exception and applies antitrust restrictions to the insurance industry just as it is applied to most other corporations.”
Insurance industry lobbyists shot back, arguing that the antitrust exemption helps small and medium sized insurers compete and its repeal could actually lessen insurance competition.
The Independent Insurance Agents & Brokers of America (Big “I”) warned that significant changes to the exemption could have negative implications for insurance purchasers.
“We are concerned that an outright repeal of the antitrust exemption in McCarran-Ferguson could have a negative impact on small and medium sized insurers in the marketplace resulting in reduced competition and potentially decreasing the availability and increasing the cost of insurance for consumers,” said Charles E. Symington Jr., IIABA senior vice president for government affairs and federal relations.
The Big “I” urged lawmakers to await the report of the Antitrust Modernization Commission, established by Congress two years ago to study a variety of antitrust issues, including the multiplicity of exemptions and privileges currently existing.
“There is little evidence indicating that wholesale changes to the McCarran-Ferguson antitrust exemption are needed or even desirable,” said Tom Koonce, Big “I” assistant vice president for federal government affairs.
Rather than boost competition, repeal of the antitrust exemption could “severely damage competition in the marketplace and hurt insurance consumers,” according to the Property Casualty Insurers Association of America (PCI).
“The limited antitrust exemption provided by the McCarran-Ferguson Act has proven essential to insurance consumers, in terms of availability, selection and price,” says Ben McKay, PCI’s senior vice president, federal government affairs. “Its existence promotes competition in the marketplace, and the loss of this important provision would likely damage small companies, prevent new entrants into the insurance industry and diminish the ability of existing insurers, of all sizes, to expand into new markets or new product lines. Such results would severely limit insurance options for consumers across America.”
Additionally, it is likely that repeal will drive up the cost of doing business by providing new fodder for class action lawsuits, meaning consumers will have to pay a cost as well in the form of higher premiums, PCI added.
PCI noted that the McCarran-Ferguson Act provides a limited, not totoal, anti-trust exemption for insurers. Insurers remain subject to antitrust laws relating to boycott, coercion and intimidation. Under McCarran, statistical agents can collect and validate data, and insurance companies can pool and use aggregated loss data. Without such loss data, the industry maintains that all but a few insurers would confront increased operating expenses and access to accurate and reliable data could become a barrier to market entry and endanger solvency.
The limited anti-trust exemption also permits insurers to form intercompany pools to provide high-risk coverage or to allow small company participation in writing risks that on an individual basis would be unavailable. The operation of assigned risk plans, such as those for auto and workers’ compensation in most states, could be hampered by anti-trust concerns in the absence of the McCarran-Ferguson exemption, according to insurers.
“The kinds of barriers that would be produced by this legislation would lead to higher costs, reduced choices and less insurance availability,” McKay said. “We believe insurance consumers need more choices, more availability and better value, and that is why keeping this exemption in place is crucial.”
Senate Judiciary Committee
Sen. Patrick Leahy
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