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GCN Guest Opinion
Regulating Insurance
by: Sen. Trent Lott       Filed 3/9/07 GCN

      Like many of you, I wondered how State Farm Insurance this week could report a surging $5.6 billion profit – up 65 percent from $3.2 billion in 2005 – when our state’s largest insurer had been inundated with an unprecedented volume of storm claims.

Is something wrong with this picture?  Millions of Americans think so.  It’s understandable for folks to wonder how any insurer could post such premium profits in the aftermath of America’s worst natural disaster.

I’m more than just disappointed with the insurance industry’s poor response to Katrina’s destruction and one company’s arrogance in the midst of South Mississippians' agony.   As your Senator, part of my job is to see that this industry is more responsive next time.  And the more I inquire about the way America’s insurers are operated, regulated and taxed, the more I see the need for reform.

Last month, I joined in taking action on one aspect of insurance regulation that should clearly change – the insurance industry’s exemption from antitrust laws.  Senators Patrick Leahy, D-Vermont; Arlen Specter, R-Pennsylvania; Senate Majority Leader Harry Reid, D-Nevada; Mary Landrieu, D-Louisiana  and I introduced legislation to subject insurers to the same antitrust laws that other industries must follow.

It’s shocking but true.  The laws designed to foster competition, to ensure that companies don’t collectively fix prices nor unfairly charge consumers, apply to almost every business sector except the insurance industry.  Insurance companies are free to collude and to interact with one another with virtually no supervision or oversight.

Why?  As I testified before the Senate Judiciary Committee on Wednesday, it’s the result of action taken 60 years ago.  In 1945 Congress and President Franklin Roosevelt approved the McCarran-Ferguson Act, a reaction to a Supreme Court decision a year earlier.

Until 1944, regulation of insurance was considered the exclusive jurisdiction of states because the insurance business was fairly local and not considered “interstate commerce.”  That year, however, the insurance industry was turned on its head when the court ruled that insurance was indeed a form of interstate commerce, inferring that the federal government should have a regulatory role.

Congress responded with an interim measure, the McCarran-Ferguson Act.  It was introduced only to be a temporary exemption, exclusively for insurers, from antitrust laws until the question of how insurance should be regulated could be resolved.

President Roosevelt in a press release said that after the moratorium period, antitrust laws “will be applicable in full force and effect to the business of insurance.”

The long continuation of the exemption stems from a broad interpretation of one phrase in the act:  “regulated by state law.”  For 60 years under McCarran-Ferguson, insurers remained exempt from antitrust scrutiny as long as they continued to be “regulated by state law.”  Anti-competitive behavior that would normally be a violation of federal law in any other industry did not apply to insurers unless it was triggered by some unusual action at the state level. That's practically impossible since states don’t have the resources or jurisdiction to fully regulate companies engaged in national interstate commerce.

Since Katrina, many Americans believe insurers have engaged in what would be considered illegal behavior in any other industry. 

There is no justification in continuing to exempt America’s insurance industry from federal oversight.  Insurers operating in an honest and appropriate way have nothing to fear from antitrust laws.

Senator Lott welcomes any questions or comments about this column. 

Write to: U.S. Senator Trent Lott, 487 Russell Senate Office Building, Washington, D.C. 20510 (Attn: Press Office) or Email

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