Giving Insurance More Credibility : New action on an old proposal to end cartel-like conditions

Buying insurance is a hedge against the risks in life. But shopping for medical, life or accident insurance can be a frustrating experience, especially when it comes to prices and products. There’s not much difference from one company to the next. One reason is that the nation’s insurers operate under a cartel-like system that allows price fixing and other anti-competitive activities. So what’s to protect consumers? Some new action in Congress on an old law.

Under the 1945 McCarran-Ferguson Act, insurance companies are virtually exempt from most federal antitrust laws and are under the umbrella of state regulation. As a result, insurers are allowed to pool and share data and to jointly establish premiums and types of coverage. The antitrust exemptions thwart free-market pricing of insurance products, prop up companies that might otherwise not be in business and artificially inflate premiums for consumers.

That’s hardly free-market economics. Rep. Jack Brooks (D-Tex.) has introduced a bill to only modify McCarran-Ferguson, not repeal it. Given the political clout of the insurance industry, Brooks is realistic in moving to eliminate only the most egregious antitrust exemptions. Insurance companies would still be allowed to continue to share certain data but, after three years, would no longer be permitted in effect to set premiums jointly.

The industry has long vigorously defended McCarran-Ferguson, arguing that it needs to share data in order to spread risk because a single incident such as an earthquake could wipe out a company. It maintains that any federal change would weaken state regulation of the industry.

But this year the American Insurance Assn., which represents mostly large property and casualty companies, broke from the opposition ranks and is urging an end to antitrust exemptions “to put to rest the increasingly unproductive debate over the McCarran-Ferguson Act.” Even so, the association opposes Brooks’ bill because it doesn’t go far enough in protecting the sharing of data.

The Brooks bill is not perfect but it’s a solid beginning to closing antitrust loopholes. California voters already have moved in that direction. They withdrew state antitrust exemptions for some insurers by passing Proposition 103 in 1988. But abolishing federal antitrust exemptions would make the insurance industry nationwide more competitive. That would be good for consumers.