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Letter to the Editor

Return of the Repeal?

After dropping off the industry's radar for more than a dozen years, the McCarran-Ferguson insurer antitrust exemption is back in the spotlight

As the U.S. House of Representatives last month voted to extend the existence of the Antitrust Modernization Commission (AMC) to mid-2007, many in the Collision Industry are wondering – and discussing – what it may mean for the insurance industry’s antitrust exemption.

“I think it would be foolish to assume that repealing the McCarran-Ferguson Act is a panacea for all the ills in the collision industry,” Ohio attorney Erica Eversman of Vehicle Information Services, Inc., said. “However, it would substantially change the positions and recourse available to parties involved in repairer-insurer-consumer disputes and issues, which I think are truly at the crux of the majority of repairer complaints.”

“I wonder if the repeal of the McCarran-Ferguson Act would really fix much at all,” countered Scott Biggs, CEO of the Assured Performance Network of collision repair shops. “Fifty different states, or one federal government as a target for reform still requires a coherent plan of action and someone to do something.”

Repeal of the McCarran-Ferguson Act seemed to have largely fallen off the table as a key topic of discussion in the industry not long after one champion of the issue, Don Randall, retired in 1993 after nearly 20 years as the Automotive Service Associ-ation’s national government affairs consultant. In 1994, Republicans gained control of Congress and for the next dozen years showed little interest in reviewing McCarran-Ferguson.

But the recent return of the Democrats to the majority in Congress is just one of a number of news events giving opponents to the 60-plus-year-old McCarran-Ferguson Act new hope – and proponents of the federal antitrust exemption for insurers more cause for concern.

Unwarranted exemption

Some quick background: The McCarran-Ferguson Act was passed by Congress in 1945 after the Supreme Court ruled that insurance could be regulated by the federal government as interstate commerce. The Act has permitted the states to continue regulating the business of insurance.

Under the Act, the insurance industry is exempt from some federal antitrust statutes to the extent that it is regulated by the states. The exemption primarily applies to gathering data as part of the process of determining rates. It is not a complete exemption; antitrust laws still prohibit insurers from boycotting, acting coercively or restraining trade.

Randall vocally kept repeal of McCarran-Ferguson at the forefront of ASA’s legislative agenda for years, believing the exemption gave insurers unnecessary power and too little oversight.

“Repeal of McCarran-Ferguson would remove insurers’ ability to agree upon and use generally standard, uniformly vague and indefinite, and certainly confusing insurance contracts,” Randall wrote in a 1988 letter to State Farm claims vice president G. Robert Mecherle. “Without McCarran-Ferguson, there…would be competitive pressures on insurers to compete not only in prices for premiums but in the real quality of claims settlement.”

Insurers, Randall wrote, hide behind their “unwarranted antitrust exemption” as part of a successful effort to “defeat the few feeble attempts to hold them liable” under other laws.

While Randall was reasonably successful in convincing collision repairers to support efforts to repeal McCarran-Ferguson, such efforts were unsuccessful and largely came to a halt in the early 1990s.

Old subject, new interest

The issue has resurfaced in recent months with indications that change in federal insurer regulation is at least a possibility, if not a probability.

In January, U.S. Congressman Gene Taylor (D-Mississippi) called for the new Congress to consider federal oversight of the property casualty insurance industry as well as repeal of the McCarran Ferguson Act. That stand sprang not from concern about collision repair claims but the growing number of “personal horror stories” involving insurance claims in the aftermath of Hurricane Katrina.

“I intend to offer legislation to eliminate the antitrust exemption that was granted to the business of insurance by the McCarran-Ferguson Act,” Taylor said. “The insurance industry’s actions in Mississippi provide ample evidence of widespread anticompetitive behavior that should be illegal. Those actions also provide proof that a small state such as Mississippi is not capable of adequately regulating the industry. I question whether any state is capable of protecting consumers and taxpayers from heavy-handed insurance practices.”

As its name implies, the Antitrust Modernization Commission (AMC) that the U.S. House voted to extend last month was created by Congress to provide an extensive report on whether antitrust laws in the United States need to be modernized. This report, expected to be released by early April, will incorporate a variety of testimony and views from various parties associated with the function of antitrust laws.

And this month as the National Conference of Insurance Legislators (NCOIL) meets in Georgia, its agenda includes a general session meeting called, “Amending McCarran- Ferguson: The beginning of the end of state regulation?”

Industry views

The seemingly rising level of interest among lawmakers for insurance regulation reform has reignited debate within the Collision Industry on what repeal of the McCarran-Ferguson Act could mean.

“For every person who has stated that repeal is the answer, I’ve heard the same number of people say that it wouldn’t be,” Dan Risley, executive director of the Society of Collision Repair Specialists (SCRS), wrote recently in an email exchange about the McCarran-Ferguson Act.

Risley, for example, said more federal regulation of insurers could give repairers the ability to lobby for needed oversight at the U.S. Capitol rather than at 50 state legislatures. But, he pointed out, the industry would still be going up against an insurance lobby that also could focus more of its resources at the national rather than state level.

“Getting repairers to lobby in their own state is a challenge because of the time that is required away from their businesses,” Risley said. “My question is whether the Collision Repair Industry would have a stronger presence and would be more willing to spend the time and money to lobby in D.C.”

He said SCRS is studying the issue and has found that many of the top insurers, rather than fighting repeal of McCarran-Ferguson, are voicing support for such a repeal.

“I can’t provide a convincing argument one way or the other, but if the McCarran-Ferguson Act is such a great things for insurers and a bad thing for repairers, why would insurers support the repeal?” Risley asked.

Attorney Eversman said it is more life insurers rather than property and casualty insurers supporting the repeal, and she is convinced repeal is absolutely in the best interests of collision repairers and consumers.

“Some people seem to be laboring under the belief that repeal of the McCarran-Ferguson Act would mean that the states could no longer regulate insurers,” she said. “That’s simply not true. All that the McCarran-Ferguson Act does now is grant an exemption to insurers from the application of the vast majority of federal laws. It doesn’t grant jurisdiction of insurers to the states. States could go right on regulating insurers, only without the McCarran-Ferguson Act, insurers would have to also comply with the federal laws that exist.”

She points out, for example, that insurers do not have to comply with post-Enron federal accounting regulations that hold key employees at publicly-traded companies accountable for company financial statements.

“I guess I just don’t have a problem suggesting insurers should have to comply with the same laws that the two-person body shop does,” Eversman said. “And I certainly think that any industry with a ten percent share of the U.S. Gross Domestic Product should have someone other than the limited state departments of insurance looking over their shoulders.”

Many others in the industry have said that, while they are not opposed to the repeal, it is not apt to be a significant win for collision repairers.

“For the most part, it is a red herring,” said Sheila Loftus, who has researched and written about the issue for decades. “It isn't going to change the lives of body shop people with or without it.”

“Repeal the McCarran-Ferguson Act, by all means; its usefulness has long since passed if it was ever useful to begin with,” Biggs said. “But regardless, don’t expect that the repeal will fix all our (industry’s) ills. Both sides of the trading relationship are at fault and no one seems willing to change the current system – but most would like to at least tilt it to their favor.”

Biggs observed that efforts to establish mutually-agreed-upon repair standards or even an end to line-by-line negotiating through some sort of “categorized capitation” system would be far more productive for the industry than efforts spent on repealing McCarran-Ferguson.

Virginia shop owner Mike Anderson serves on ASA’s Collision Division Operations Committee but emphasized he is strictly voicing his own opinions (not speaking as part of the committee) when he commented that he sees the repeal of the McCarran-Ferguson Act as a half-full glass for the industry.

“I feel that the (repeal) will not change our industry to the degree that some people do, but I do believe it gives us a glimmer of hope of a fair and equitable solution to labor rate issues and steering laws being enforced, which to my knowledge are never pursued because there is no strong penalty,” Anderson said. “I truly believe that one of the best hopes – though I am not suggesting only hope – is to get the (U.S.) Attorney General involved in the insurance industry regulations.”

Return to the spotlight

Although the full potential impact for the industry of the repeal of the McCarran-Ferguson Act is clearly still very much a matter of disagreement, one thing is becoming apparent: Federal oversight of insurance has returned to once again become a key topic of debate among lawmakers, and the continued value of the insurer antitrust exemption is likely to be at the center of that debate.   o

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