 |
 |
 |
|
Public Policy Analysis & Opinion Defending McCarran NAIC testifies again, before yet another federal commission By Kevin P. Hennosy The National Association of Insurance Commissioners (NAIC) testified in Washington, D.C., in defense of the McCarran-Ferguson Act. How many times in the last 61 years has a similar lead sentence appeared in insurance publications? This time the challenge to the venerable old “act to regulate the business of insurance” came on October 18, 2006. The challenge arises in Washington, and the Kansas City-based NAIC rushes halfway across the continent to fend off the threat. It is the stuff of heroic drama to those intrepid few who follow insurance public policy. To others, the redundant dance from KC to DC looks a bit like the Bill Murray movie “Groundhog Day,” in which a local TV weatherman named Phil Connors is doomed to relive the same day, Groundhog Day, over and over. With each replay of the faux holiday, which purportedly predicts when the end of winter will come, Phil responds to the same activities and stimuli. The repetition grates at his soul. One can be forgiven for feeling the same way about the NAIC and its cyclical battle with federal officials. There was a time when the NAIC’s battles with Washington resulted in something real—tangible improvements to the regulatory framework. But the advances have become less real. Over and over we hear the same threats of federal action and promises of state improvement, only to see them followed by widespread inaction. There is no sign that the NAIC’s Winter of Discontent will end soon. The NAIC’s latest trip to the Potomac was to testify before an arcane group known as the Antitrust Modernization Commission. Congress created the commission by statute to study antitrust laws and recommend changes to them. The leadership of both houses of Congress and the president each named four members to the 12-member commission. In the past 15 years, any government office, policy or program that contains the word “modernization” in its title has really been formed to reverse past progress. Modernization is a newspeak term, which misleads the audience to believe that bad is good, love is hate and war is peace. For example, if a mad member of Congress wanted to propose a constitutional amendment designed to repeal the 13th Amendment’s prohibition of slavery, he or she would simply name the proposal The Anti-Involuntary Servitude Modernization Amendment. The Antitrust Modernization Commission is no exception to this rule. The membership and staff of the commission are stacked with partners and former attorneys for elite lobbying law firms. In addition, there is a smattering of representation from large corporations that might have an interest in seeing changes to antitrust law and enforcement. A primary focus of the commission’s work seems to be whether or not to remove the criminal sanctions from the Robinson Patman Act of 1936. The act forbids any person or firm engaged in interstate commerce to discriminate in price to different purchasers of the same commodity when the effect would be to lessen competition or to create a monopoly. Congress designed the act to protect the independent retailer from chain-store competition, but it was also strongly supported by wholesalers eager to prevent large chain stores from buying directly from the manufacturers for lower prices. On October 18, the commission conducted a hearing to collect comments on the limited and contingent antitrust exemptions afforded to the insurance industry by the McCarran-Ferguson Act. The act exempts many forms of anticompetitive behavior by insurers—deemed by Congress to be in the public interest—as long as the states regulate the business of insurance. If the states do not regulate, antitrust law and enforcement apply to ALL of insurers’ activities. Since the mid-1990s, the NAIC and individual insurance commissioners have closed one eye and looked past the provision of McCarran-Ferguson that requires state regulation to shield insurers from antitrust enforcement. In the absence of Congressional oversight since 1995, state officials have given in to the tremendous financial power of extreme factions of the insurance lobby and have passed deregulation statutes. At the October 18 meeting, Illinois Director of Insurance Michael McGrath testified on behalf of the NAIC. The testimony is remarkable for its description of the states’ responsibilities under McCarran-Ferguson. For several paragraphs of the testimony, one would think that the ghosts of the drafters of the act were speaking through Director McGrath. According to a statement released by the NAIC public relations office, McGrath emphasized that the core priority of state insurance officials is to protect consumers. He also highlighted the unique characteristics of insurance, which warrant special consideration under federal antitrust laws and make analogies to other financial sector products inherently misleading. Additionally, he emphasized that state law and supervision provide active oversight of insurers’ cooperative endeavors and prohibit anticompetitive behavior. (Emphasis added.) The use of the term “supervision” is an interesting deviation from 60 years of insurance law. Supervision is a term more often used in the oversight of banks, a relatively easier function. Banking supervisors are charged with overseeing the safety and soundness of banks. The McCarran-Ferguson Act is a law to “regulate the business of insurance” and not to supervise it. Insurance regulators traditionally hold a more complex and intrusive role than banking supervisors. A regulator plays an active role in protecting consumers from coercive or unfair actions by producers, rather than simply trying to establish a proper framework and stepping back. In addition, Director McGrath’s attempt to make McCarran-Ferguson a competition-based legal framework runs counter to the historical record. McCarran-Ferguson was passed in order to shield insurers from direct competition by allowing for cooperative efforts in pricing and product design. It is true that Illinois state officials have long shirked this responsibility in deference to the state’s powerful insurance lobby, but that is an example of non-compliance with federal law and not congressional intent. If Congress had wanted to leave insurance consumers to the tender mercies of competitive markets, it would have simply left the sector subject to antitrust law and Federal Trade Commission oversight after the Supreme Court ruling in U.S. v. South-Eastern Underwriters Association (1944). If one reads Director McGrath’s statement in its entirety, it becomes clear that the director is not as uninformed as the NAIC public relations office presents him. McGrath’s testimony does explain that insurance regulation is different and more complex from other forms of business oversight. Commissioners must be used to getting that kind of treatment from NAIC staff, but they should know it was not always that way. Someday, the commissioners will clean house at the NAIC Central Office in Kansas City. Of course the most hypocritical aspect of the NAIC’s arguments in defense of McCarran-Ferguson concerns the states’ ability to levy premium taxes—which the act reaffirms and protects. For all the talk about consumer protection, state officials worry the most about losing access to a lucrative form of taxation. In addition, insurance companies actually welcome the states’ ability to charge premium taxes because the revenue gives the sector great influence over state politics. The premium tax is little more than a legalized bribe that no one wants to discuss in polite conversation. The commission did hear from at least one voice that suggested that repeal of McCarran-Ferguson might not be the end of the world. Former Missouri Director of Insurance and Public Interest Lawyer Jay Angoff delivered testimony which argued that McCarran-Ferguson might not be necessary. In one persuasive section of his testimony, Angoff reviewed legal precedence that seem to undermine arguments of the act’s defenders that the insurance sector needs protection from antitrust law to work in concert for the public good. Will anything come of this latest review of the McCarran-Ferguson Act? No. The commission was created in the salad days of the Bush Administration and Republican congressional dominance. The environment in Washington has changed. The commission will write a final report, and various professors and graduate students will publish papers on it. McCarran-Ferguson will not be repealed by commission study. Only a mighty scandal will bring the political heft necessary to crush the old state-based framework. So once again, it is another Groundhog Day on the insurance regulatory beat. Although, it is important to remember, when you are talking about Congress and state legislatures, scandal could always be just down the hall and around the corner. * The author |
|
|||||||||||||
| ||||||||||||||
