NAIC And ACLI Tangle On OFC And McCarran Repeal

The bill would repeal the industry's antitrust exemption under McCarran-Ferguson as well as a provision of the FTC Act passed in 1980 that bars the agency from preparing reports and regulating the industry without specific authorization by Congress.

For example, the FTC is currently preparing a report on whether credit scoring is an appropriate criterion for use in the underwriting of insurance policies, based on language inserted into a bill several years ago by Rep. Luis Gutierrez, D-Ill.

The life insurance was not under scrutiny at the hearing. S. 618 was prompted by the uproar created by the p-c industry's handling of claims from Hurricanes Katrina and Rita in 2005 and by its effort to reduce its risk from Gulf Coast hurricanes by raising rates heavily to residents there, or, in some cases, ceasing to offer homeowner's insurance to residents in coastal areas.

Sen. Trent Lott, R-Miss., the Senate minority whip, called the industry's behavior in handling claims from the hurricane "reprehensible."

He contended that a key reason behind the industry's behavior was that the McCarran-Ferguson Act has allowed insurers "for more than 6 decades" to operate "largely beyond the reach of federal competition laws."

Sen. Leahy added, "The bottom line is right now we do not know what anticompetitive acts insurers may be engaging in because the antitrust immunity insurers enjoy acts as a curtain that hides their activity from federal antitrust authorities."

But an insurance industry representative defended the 1945 law as good for consumers and the markets–and comparable to the same "legislative balance" enjoyed by the banking and securities industries.

In both prepared testimony and in answer to questions, Marc Racicot, president of the American Insurance Association, defended the industry and made clear its united opposition to the legislation.

Noting that there are 5,000 property-casualty insurance companies providing coverage in the U.S., Racicot answered a question from Sen. Orrin Hatch, R-Utah, a member of the committee, by saying, "I don't think you'll find one of them who believes passage of this bill is a good idea for consumers, or for states."

"And the reason is that they know their business is being 'conducted in the light of day' and is in the best interests of consumers," Gov. Racicot said.

"The more competition, the better," he said, noting that the interests of Sen. Leahy, the committee and the p-c industry coincide under current law, adding, "I would argue that there is no financial services industry in the country more heavily regulated than the insurance industry."