McCarran-Ferguson Act Questions and Answers
What is the McCarran-Ferguson Act?
Industry Issues | Industry Issues
Industry Issues | McCarran-Ferguson Act
The McCarran-Ferguson Act, enacted by Congress in 1945, is a federal law that
exempts the business of insurance from some, but not all, federal antitrust
laws. Cooperative actions that are essential to the nature of insurance are
exempted only where they are actively regulated by the states.
Is it true that the insurance industry is not subject
to federal antitrust laws?
The insurance industry is subject to antitrust laws. The McCarran-Ferguson Act
only provides a limited exemption for activities that are considered the
"business of insurance," which includes risk sharing and other activities that
are actively regulated by state law. It does not allow price fixing or
collusion on claims settlements. Furthermore, McCarran specifically prohibits
insurers from engaging in boycotts, coercion or intimidation; if and when such
activities may be found to exist, federal antitrust laws are fully applicable.
Why should the insurance industry enjoy a special
The exemption is necessary because it keeps prices down, increases competition
and reduces unnecessary lawsuits. Insurance is regulated at the state level,
and additional federal oversight would amount to duplicative regulation and
more bureaucracy, ultimately resulting in higher costs and fewer insurance
choices for consumers. It is important to note that insurance is not the only
industry that is allowed an exemption. A number of other industries that are
otherwise regulated by specific statutes, including agricultural cooperatives,
bank mergers, labor unions, stock exchanges and others, also have limited
Why does the insurance industry oppose repeal of
An additional layer of federal regulation would drive up administrative and
legal costs for insurers, and they would face onerous costs for data analysis
that they can currently share. Small to mid-sized insurers, with smaller cash
reserves, would be particularly hard hit by these costs, and it is conceivable
that many of these insurers would not remain solvent. The end result of
McCarran-Ferguson repeal is that consumer costs would go up, and consumers
would have fewer choices for their insurance needs.
Does the limited exemption allow insurers to engage in
Insurers are not permitted to engage in anticompetitive behavior, and
McCarran-Ferguson does not shield them from prosecution for collusion,
price-fixing or any other anticompetitive activities. Additionally, state
antitrust laws apply to the industry, as do state laws regulating the business
Wouldn't application of federal antitrust laws to the
industry prevent insurance companies from simultaneously leaving a state or
Federal antitrust laws related to collusion and boycotts currently apply to the
insurance industry, and these activities are not permitted by the exemption.
Is this the first time that Congress has attempted to
Calls for McCarran repeal have taken place in every decade, starting with the
1960s, and the most recent legislation, prior to now, was introduced in 1994.
For forty years, different Congresses under vastly different circumstances have
examined repeal and ultimately opted against it. While it certainly should not
be taken as a given that the current Congress will follow suit, it is telling
that so many past Congresses have taken up McCarran repeal and, upon careful
examination, rejected it.
What evidence exists that McCarran-Ferguson repeal
would help consumers?
No reliable evidence has been presented to demonstrate that repealing
McCarran-Ferguson will help consumers. Conversely, there is good reason to
worry that repeal would, in fact, hurt consumers by raising costs and reducing
the number of insurance companies in the market, leading to less competition,
fewer choices and higher costs for consumers.