Repeal Mccarran-Ferguson; Use Safe Harbors to Protect Consumers, Says ABA

WASHINGTON, D.C., June 20, 2006 – “The American Bar Association favors repeal of the McCarran-Ferguson Act, which largely exempts the insurance industry from the antitrust laws,” stated Donald C. Klawiter, chair of the ABA Section of Antitrust Law before the Senate Judiciary Committee this morning.  “We believe that the law should be replaced by a series of safe harbors to make clear that certain types of conduct by insurers are pro-competitive and beneficial to the American economy.”

Speaking on behalf of the ABA, Klawiter spoke during the committee’s consideration of the repeal of antitrust exemption for the insurance industry.  Klawiter stated that the safe harbors advocated by the ABA “are intended to protect legitimate pro-competitive joint activity by insurers while still subjecting the insurance industry to the antitrust rule of law.  While much, if not all, of the safe harbor conduct would be permissible or even encouraged under current antitrust precedent, the idea of the safe harbors is to remove all doubt, and hence to discourage private suits challenging such pro-competitive conduct.”

Nearly 20 years ago the ABA formed a commission to study the application of U.S. antitrust laws to the business of insurance, said Klawiter. And after two years of debate, the ABA adopted a resolution recommending repeal of McCarran-Ferguson and replacing the exemption with safe harbors defining categories of exempt conduct.

“It is the view of the American Bar Association,” he said, “that all conduct that does not fall within the specific safe harbors should be subject to the same antitrust rules that are applied to all other sectors of the American economy. … The safe harbors are not intended to alter existing antitrust policy.”

The safe harbors noted by Klawiter, which have been approved by the ABA, include:

• Insurers should be authorized to cooperate in the collection and dissemination of past loss-experience data so long as those activities do not unreasonably restrain competition
• Insurers should be authorized to cooperate to develop standardized policy forms to simplify consumer understanding, to enhance price competition and to support data collection efforts
• Insurers should be authorized to participate in voluntary joint-underwriting agreements to cooperate in making rates, policy forms and other insurance functions so long as these activities do not unreasonably restrain competition
• So long as the residual market mechanism is approved and actively supervised by a state regulatory agency, insurers participating in residual market mechanisms should be authorized, in connection with such activity, to cooperate in making rates, policy forms and other insurance functions
• Insurers should be authorized to engage in any other collective activities that Congress specifically finds do not unreasonably restrain competition in insurance markets.

Other than the safe harbors, Klawiter asserted, it is “[the ABA’s] strong position that [the] insurance industry should be subject to the same antitrust rules as other industries.”

Finally, Klawiter noted that legislation currently before Congress, S.1525, which would remove the antitrust exemption in the medical malpractice insurance area, should – as with any legislation modifying antitrust exemptions — include safe harbors that are expressly spelled out by Congress.

With more than 400,000 members, the American Bar Association is the largest voluntary professional membership organization in the world.  As the national voice of the legal profession, the ABA works to improve the administration of justice, promotes programs that assist lawyers and judges in their work, accredits law schools, provides continuing legal education, and works to build public understanding around the world of the importance of the rule of law in a democratic society.