Property Casualty Insurers Association of America
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Industry Issues | McCarran-Ferguson Act
McCarran-Ferguson Act Questions and Answers

What is the 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 exemption?
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 exemptions.

Why does the insurance industry oppose repeal of McCarran-Ferguson?
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 anticompetitive behavior?
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 of insurance.

Wouldn't application of federal antitrust laws to the industry prevent insurance companies from simultaneously leaving a state or market?
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 alter McCarran-Ferguson?
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.