GAO-05-816R Ultimate Effects of McCarran-Ferguson Federal Antitrust Exemption on Insurer Activity are Unclear

Identical, bipartisan bills, S. 618 and H.R. 1081, that would eliminate the current McCarran-Ferguson Act antitrust exemption for the "business of insurance," in force since 1945, have been introduced in the 110th Congress. Their impact, if enacted, is unclear. They would each amend 15 U.S.C. Section 1012(b) to make the antitrust laws and the Federal Trade Commission Act (FCTA) "as it relates to unfair methods of competition" specifically applicable to such business. The FCTA, "as it relates to areas other than unfair competition"(emphasis added) would, however, continue to apply to the "business of insurance" "to the extent that [it] is not regulated by State law." Due largely to the importance of information sharing to insurers, the insurance industry in the past has cooperated in a variety of ways, including sharing loss information, jointly developing policy forms and rates, operating residual market mechanisms, and participating in state guaranty funds. Some forms of cooperation, particularly joint rate making and mandatory advisory rates, have already been curtailed because of antitrust concerns. Other forms of industry cooperation, however, might be considered illegal under federal antitrust laws if S. 618 or H.R. 1081 were to become law. The precise impact of these bills on the insurance industry would depend critically on future court decisions. In particular, the cooperation that insurance companies currently undertake might be judged legally permissible under the "state action" doctrine. Before this area of law would be settled, however, it would arguably involve numerous lawsuits. This report will be updated as events warrant.