The McCarran-Ferguson Exemption from the United States Antitrust Laws recent developments

This paper was presented at a conference on the application of antitrust laws in the context of the Korean insurance industry, and deals specifically with recent U.S. and international developments in competition law and insurance. The American McCarran-Ferguson Act provides a limited exemption, seeking to fashion an appropriate balance between competition and the need of firms in the insurance industry to share information that may be competitively sensitive yet allow the firms to provide better services to their customers. The article recognizes that effective antitrust enforcement and information exchanges among competitors may, depending on the circumstances, promote consumer welfare, which is generally recognized as the touchstone and dominant goal of competition laws and enforcement. However, the analysis contemplated by the statutory scheme directly implicates the allocation of competence between the federal and state governments. Thus, the allocation of power and deference is at the center of this doctrine and issues of federalism predominate. This facet of the American political system is relevant for other jurisdiction whether similar antitrust exemptions are necessary in their circumstances. First, there has been considerable debate among the antitrust bar, the insurance industry, enforcement agencies and consumer representatives on the merits and potential competitive risks of the McCarran exemption. The American Bar Association has long proposed a compromise position to replace the existing exemption, but this proposal, too, has never been adopted. The Antitrust Modernization Commission held extensive hearings on all aspects of substantive antitrust doctrine and enforcement, including exemptions and antitrust immunity, and issued a report warning against excessive exemptions, but not recommending specific reform or repeal of the McCarran-Ferguson Act. The National Association of Attorneys General also opposes industry-specific legislation that would weaken antitrust enforcement, and therefore supports a complete repeal of the McCarran-Ferguson exemption for the insurance industry. National consumer groups join in recommending total repeal, while the insurance industry supports a strong exemption. Finally, some have approached the federalism question directly and urge repeal of McCarran and substitution of federal, not state, regulation of the insurance industry and ultimate pre-emption of federal antitrust laws in deference of a national regulatory scheme. Secondly, Congressional hearings have contributed to the debate. Several bills have been introduced and various committees have held periodic hearings, but no legislation has been adopted by the United States Congress. The general trend of proposed legislation began with recommendations to modify the scope of the immunity, then moved towards complete repeal of the exemption and now include some calls for repeal and permissive federalization of insurance regulation. Third, there have been few recent Supreme Court cases but many, and conflicting cases from lower federal and state courts. The overall effect of these cases has been to complicate the already-complex state of the law. To the extent that the McCarran-Ferguson was designed to clarify the balance of state and federal power to regulate and to set a clear substantive standard, the project has failed. Fourth, antitrust immunity is generally discouraged by international policy groups including the International Competition Network and OECD. However, a version of the American immunity covering information exchanges among firms in the insurance industry is currently the subject of a block exemption of the European Commission., which is due to sunset in 2010 unless extended. As part of its oversight responsibilities, the European Commission enforcement agency, DG Comp, conducted a sector inquiry into the insurance sector and opened a public consultation into the need for the block exemption. DG Comp concluded, as a preliminary matter, that claims for the block exemption are unpersuasive, and is inclined to allow the block exemption to expire and rely on the general competition rules to protect necessary and pro-competitive activities in the business of insurance. McCarran has been criticized from all sides since its adoption more than 60 years ago. Nevertheless, once embedded in the law, exemptions are difficult to remove despite criticism of the immunity, confusion among the courts, and proffers of compromise. At the end of the day, however, some consensus can be found: antitrust laws are a consumer welfare prescription; antitrust exemptions should be narrowly construed and adopted when necessary to remedy market failures; and data dissemination and other agreements in the business of insurance are likely pro-competitive when analyzed under the rule of reason. The future of an insurance block exemption in Europe is uncertain, but in the absence of more consensus on a particular option, the one way rachet describes the status of antitrust immunity in American antitrust law - once an exemption has been granted and embedded in the law, it is likely to remain.