[Congressional Record Volume 152, Number 125 (Friday, September 29, 2006)]
[Senate]
[Pages S10711-S10713]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SPECTER (for himself, Mr. Lott, Mr. Leahy, and Ms. 
        Landrieu):
  S. 4025. A bill to strengthen antitrust enforcement in the insurance 
industry; to the Committee on the Judiciary.
  Mr. SPECTER. Mr. President, I seek recognition today to introduce the 
Insurance Industry Antitrust Enforcement Act of 2006. This legislation 
would subject the insurance industry to the antitrust laws, which apply 
to almost every other industry in America.
  Congress enacted the McCarran-Ferguson Act in 1945. It did so in 
response to a controversial Supreme Court case in which the Court held 
that the business of insurance constituted interstate commerce. The 
ruling opened the door to federal regulation of insurance, a business 
that had historically been regulated by the States. Reacting to concern 
from the states that they would no longer have authority to collect 
taxes on insurance premiums, Congress passed McCarran-Ferguson, which 
reaffirmed the power of the States to regulate insurance and collect 
taxes.
  In doing so, Congress exempted insurance industry practices from the 
antitrust laws to the extent that such practices are ``regulated by 
state law.'' Since then, the courts have liberally interpreted the 
phrase ``regulated by state law.'' They have held that insurance 
industry practices are exempt from the antitrust laws so long as 
regulators have been given jurisdiction over the challenged practices--
regardless of whether the regulators ever exercise that jurisdiction.
  Over the years, State regulators have either chosen not to regulate, 
or failed to regulate, practices that would have violated the antitrust 
laws absent McCarran-Ferguson. With McCarran-Ferguson, such practices 
escape both regulatory and federal antitrust oversight. The most 
notorious practices to come to light involved bid-rigging and customer 
allocation by insurance broker, Marsh & McClennan, and several of the 
nation's largest insurers, including AIG and Zurich American Insurance 
Company. Under the scheme, Marsh steered unsuspecting clients to 
insurers with which it had lucrative payoff agreements. To make the 
scheme work, Marsh solicited fictitious bids from other complicit 
insurers to make the bid submitted by the selected insurer--the one 
that offered Marsh the highest payoff--seem competitive.
  Even though the scheme eliminated competition among the insurance 
companies that were involved, those companies could not be prosecuted 
under Federal antitrust law. Several States prosecuted the insurance 
companies

[[Page S10712]]

under a variety of State laws, including antitrust laws, but federal 
prosecutors could not bring their significant resources to bear. There 
simply is no justification for that. Federal law enforcement should 
have the power to prosecute such blatant violations of the antitrust 
laws.
  This is not the first attempt to subject the insurance industry to 
Federal antitrust law. In the wake of numerous insolvencies, 
mismanagement and other misconduct by insurers in the late 1980s, 
legislation was introduced repealing the exemption. That legislation, 
introduced by Congressman Brooks, faced opposition from insurers who 
claimed that many industry practices engaged in jointly by insurance 
companies were pro-competitive and necessary for smaller insurers. The 
legislation provided a safe harbor, specifically listing the practices 
of insurance companies that would be exempt from the antitrust laws. 
However, it proved impossible to craft a list of safe harbors for all 
the information that competing insurers claimed they needed to share 
with one another. This bill has avoided that problem.
  More recently, some have argued that the answer to insurance industry 
ills is full federal regulation. I do not necessarily believe that 
stripping the States of their authority to regulate the insurance 
industry is the answer. This bill does not do that. It allows states to 
continue to regulate their insurance industries. However, the existence 
of state regulation is no reason to prevent the Federal Government from 
prosecuting violators of antitrust laws. And, there is no reason to 
prevent Federal prosecutors from going after those violators just 
because they happen to work for insurance companies.
  As I've said, allowing Federal prosecutors to go after those who 
violate the antitrust laws will not prevent states from regulating the 
insurance industry. If a state is actively supervising practices by its 
insurance industry that might otherwise violate the antitrust laws, 
this legislation would exempt that practice from the antitrust laws. 
Antitrust law does not generally apply where a state is actively 
regulating an industry. This is as it should be and the legislation I 
introduce today, the Insurance Industry Antitrust Act of 2006, 
incorporates that standard.
  The Judiciary Committee held a hearing on this issue in May.
  During the hearing, Marc Racicot, the President of the American 
Insurance Association, a trade association composed of the nation's 
largest insurers, acknowledged that ``every State provides some form of 
antitrust regulation of insurers.'' In other words, many States already 
enforce their State antitrust laws with respect to insurers. So, I have 
to ask, why have we tied the hands of federal antitrust enforcers?
  The insurers will argue that repealing the antitrust exemption for 
insurers will create uncertainty by throwing into question the legality 
of every joint practice engaged in by insurers. They will argue that 
the legality of each joint practice will have to be litigated in court. 
However, this bill has been drafted to avoid such litigation. Rather 
than incorporating a laundry list of safe harbors, an approach that was 
taken in the past, the bill would allow the Federal Trade Commission to 
issue guidelines identifying joint practices that do not raise 
antitrust concerns and would therefore not face scrutiny from antitrust 
enforcers.
  This is a job for which the Commission is well equipped. In the past, 
the Commission along with the Justice Department issued ``Statements of 
Antitrust Enforcement Policy in Health Care.'' The Health Care 
Statements identified joint conduct by health care providers that did 
not raise antitrust concerns and therefore would likely escape scrutiny 
by antitrust enforcers. The Health Care Statements were designed to 
give health care providers certainty about the legality of their joint 
conduct under the antitrust laws. Similar guidelines for the insurance 
industry would provide insurers with certainty, but at the same time, 
would ensure that joint practices that are anticompetitive receive 
scrutiny from the antitrust enforcement agencies.
  Although insurers oppose repeal of their antitrust exemption, others 
support a repeal. In particular, the Antitrust Section of the American 
Bar Association has long supported repeal. During the Judiciary 
Committee's hearing, the current head of the Antitrust Section, Donald 
Klawiter noted the Section's nearly 20-year history of supporting 
repeal. Klawiter testified that ``the benefits of antitrust exemptions 
almost never outweigh the potential harm imposed on society by the loss 
of competition.'' At the same hearing, Robert Hunter, testifying on 
behalf of the Consumer Federation of America, concluded that 
``application of the antitrust laws to the insurance industry could 
result in double-digit savings for America's insurance consumers.''
  It is my hope that this legislation will bring the benefits of 
competition to the insurance industry and to consumers. Too many 
consumers are paying too much for insurance due to the collusive 
atmosphere that exists in the insurance industry. This has become a 
particular problem along the Gulf Coast, where insurers have shared 
hurricane loss projections, which may result in double-digit premium 
increases for Gulf Coast homeowners.
  I strongly urge members who are concerned about industry exemption 
from the antitrust laws and collusive insurance industry practices to 
support this important piece of legislation. I ask unanimous consent 
that the text of the bill be printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 4025

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Insurance Industry Antitrust 
     Enforcement Act of 2006''.

     SEC. 2. AMENDMENTS.

       Section 2(b) of the Act of March 9, 1945 (15 U.S.C. 
     1012(b)), commonly known as the McCarran-Ferguson Act, is 
     amended by--
       (1) inserting ``section 5 of'' after ``Clayton Act, and'';
       (2) inserting ``as section 5 relates to unfair methods of 
     competition,'' after ``Commission Act, as amended,'';
       (3) striking ``to the extent that'' and all that follows 
     through ``law.'' and inserting the following: ``except to the 
     extent--
       ``(1) the conduct of a person engaged in the business of 
     insurance is undertaken pursuant to a clearly articulated 
     policy of a State that is actively supervised by that State; 
     or
       ``(2) the conduct involves a third party not engaged in the 
     business of insurance--
       ``(A) that collects, compiles or disseminates aggregated 
     historical loss data;
       ``(B) that develops and disseminates standardized insurance 
     policy forms, contracts addendums or language; or
       ``(C) that--
       ``(i) facilitates other joint conduct pursuant to 
     guidelines issued by the Federal Trade Commission or existing 
     law; and
       ``(ii) does not include--

       ``(I) exchanging information among competitors relating to 
     sales, profitability, prices, marketing, or distribution of 
     any product, process, or service that is not reasonably 
     required for the purposes enumerated in subparagraph (A) or 
     (B);
       ``(II) entering into any agreement or engaging in any other 
     conduct that would allocate a market with a competitor; or
       ``(III) entering into any agreement or conspiracy that 
     would set or restrain prices of any good or service.''; and

       (4) adding at the end the following:

     ``Except as it relates to unfair methods of competition, the 
     Federal Trade Commission Act shall be applicable to the 
     business of insurance to the extent that such business is not 
     regulated by State law.'' .

  Mr. LEAHY. Mr. President, I am pleased to join Senator Specter, along 
with Senators Landrieu and Lott, in introducing the ``Insurance 
Industry Antitrust Enforcement Act of 2006.''
  In 1945, Congress passed the McCarran-Ferguson Act, giving the 
insurance industry almost complete immunity from Federal antitrust 
laws. The Act acknowledges the significant role States have in the 
regulation of the business of insurance, and implements this policy by 
preempting Federal antitrust laws which would intrude upon State 
authority in the area.
  Industry specific statutory exemptions from antitrust laws are rare, 
and when they are enacted, it is important that we periodically revisit 
them to ensure that the benefits of the exemption are not outweighed by 
the potential harms that could be imposed on consumers from the loss of 
competition. The McCarran-Ferguson Act is no exception and, for good 
reason, has recently been revisited by the Senate Judiciary Committee.
  At a recent hearing before the Committee, it became abundantly clear 
that the McCarran-Ferguson Act is no

[[Page S10713]]

longer a justified or practical law; it is overly complex and stifles 
competition. Recognizing that the insurance industry has unique 
characteristics, including the dependence on collective claim and loss 
data, Senator Specter and I drafted a bill to accommodate those 
legitimate needs while still providing Federal regulators with the 
tools to investigate and prevent collusion and other anticompetitive 
behaviors. More specifically, our bill authorizes Federal enforcement 
agencies to police violations of antitrust laws, without weakening the 
States' comprehensive regulatory power.
  American consumers, from sophisticated multi-national businesses to 
Vermonters shopping for personal insurance, have the right to be 
confident that the cost of their insurance reflects competitive market 
conditions and not collusive behavior. Yet, when consumers are 
continually faced with higher prices, fewer options, and declining 
quality of service from their insurance providers, there are no such 
assurances.
  There is little disagreement that consumers are increasingly 
frustrated with the cost and quality of their insurance policies. This 
bill is an important step towards restoring integrity in our insurance 
markets. I hope it will act as a catalyst for action to ensure market 
forces are at work in the insurance industry.
                                 ______