Legislation seeking to amend what is a very limited federal antitrust exemption for the insurance industry under the McCarran-Ferguson Act would likely reduce competition in the industry, resulting in less choice and higher costs for insurance buyers. Here's why.
- For smaller insurers that do not have the resources available to accurately price coverage, the benefits of data-pooling are significant. Industry analyst Advisen notes that without access to pooled data, smaller insurers would not be able to compete as effectively and would be more prone to insolvency since they would be unable to actuarially price their products.(3)
- Smaller insurers are an important source of competition for larger national insurers and a large source of business for local agents. According to A.M. Best, of the 2,000 P/C insurers operating in the U.S., around one-third are small (companies with adjusted policyholder surplus of up to $100 million).(4)
- Federal antitrust laws would apply "to the extent that such business is not regulated by State law."
The McCarran Act gives primary insurance regulation to the states. Some in the industry believe companies should have the option of being regulated by the states or the federal government. Others believe that the state system of regulation is most appropriate. All agree that the current state regulatory system needs modernization.
(1) Some of the content in this paper is derived or adapted from comments by Lawrence H. Mirel of Wiley Rein LLP and former insurance commissioner for the District of Columbia, February 9, 2007.
(2) The McCarran Ferguson Act Anticompetitive or Procompetitive? Patricia M. Danzon, the Wharton School of the University of Pennsylvania, Regulation - The Cato Review of Business and Government, 1991.
(3) Advisen QuickNote: Insurers? Antitrust Exemption Under Attack (Again), March 5, 2007.
(4) Based on A.M. Best 2008 Financial Size Category Information, 2008 Best's Ratings & Reports.