McCarran-Ferguson Act

What is the McCarran-Ferguson Act?

The McCarran-Ferguson Act provides that the federal antitrust laws are applicable to the business of insurance in instances where the "business of insurance" is not otherwise regulated by state law. Thus, the federal antitrust exemption provided by McCarran — often referred to by those asking for its repeal — is very narrow. The exemption only applies where regulation at the state level exists, and then only to those activities that constitute the "business of insurance". This serves the principal purpose of allowing insurers to consolidate loss data for accurate pricing.

In a March 2005 letter to former House Financial Services Committee Chairman Michael Oxley, the Government Accountability Office summarized the nature and scope of the insurer exemption from federal antitrust laws as follows:

"Today, only those activities directly tied to ratemaking and other functions at the core of and unique to the insurance industry, and activities directly related to the relationship between insurer and insured, are deemed to be the 'business of insurance,' potentially immune from the federal antitrust laws (provided they are also regulated by State law and do not constitute an act of boycott, coercion, or intimidation)."

Many states have their own antitrust laws that also apply to insurers. In addition, all states have provisions in their insurance codes prohibiting insurers from engaging in unfair or deceptive acts or practices. The prohibited practices include:

  • Attempts to monopolize or conspire;
  • Misrepresentation of policy terms;
  • Boycott in concert by insurers;
  • Coercion and intimidation;
  • Unfair discrimination;
  • Illegal rebates;
  • Unfair claims settlement practices; and
  • Any other arrangement between insurers which is intended to restrain trade or competition.

What do others say? Some have recently called for the repeal of the McCarran-Ferguson Act under the mistaken belief that 1) insurers may collude in the setting of prices or how claims will be handled; and 2) the Act somehow protects insurers from prosecution when they engage in unlawful behavior of this type. Such actions are not protected under the McCarran–Ferguson Act — it would be unlawful for insurers to behave in this manner.

What is the position of State Farm®? State Farm continues to believe in effective regulation in those areas in which the government has a legitimate interest — regulation for solvency and regulation of market activities.

Because McCarran–Ferguson allows for the consolidation of loss data, it is most beneficial to small and medium size insurers that are not able to conduct meaningful analysis using only their own limited data. Any change in McCarran–Ferguson should promote competition, not inhibit it. We will oppose any proposals that inhibit competition or add extra layers of regulation on top of the current state–based regulatory system.