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Letter to the Editor

State vs.Federal

Shops and insurers are considering how things might look differently for the industry if regulation of insurance shifts from states’ hands to the federal government.

Perhaps more than at any time in recent history, the federal government appears poised to wrest some oversight or regulation of insurance from the hands of the states. Witness:

- This past March, U.S. House of Representatives Gene Taylor (D-Miss.), Bobby Jindal (R-La.) and Peter DeFazio (D-Ore) introduced federal legislation (HR 1583) that amends the McCarran-Ferguson Act by eliminating the federal antitrust exemption for the insurance industry that has been in place for more than 60 years. "There is no justification for the insurance industry to be exempt from federal anti-trust laws," Rep. DeFazio said. "It is a quirk of history that needs to be corrected." The bill (and similar legislation introduced in the U.S. Senate) would give the U.S. Department of Justice and the Federal Trade Commission the authority to enforce antitrust laws for insurance companies if they show anti-competitive behavior.

- Another proposed federal law (HR 1880), co-sponsored by Rep. Melissa Bean (D-Ill.) and Rep. Ed Royce (R-Calif.), would give insurers the option to file for a federal charter and come under federal regulation rather than state. Previous proposals such as this focused primarily on life insurance, while this one would open to the optional federal charter to other insurance lines, such as property and casualty insurance.

- Though Trent Lott’s 2007 retirement from the U.S. Senate (where the Republican had represented Mississippi) had to come as somewhat of a relief to insurers, Lott clearly fueled what has been an ongoing wave of anti-insurer sentiment after he was among the homeowners whose claims were denied following Hurricane Katrina. (Lott subsequently settled with State Farm for an undisclosed amount.)

- Though AIG’s property-casualty unit was virtually unrelated to its meltdown as part of last fall’s economic crisis, the company’s action and federal bail-out have not given Americans any added warm-fuzzy feelings about insurance companies.

- The Obama administration this summer released legislative language describing the powers of a proposed new federal government office that would have jurisdiction over all lines of insurance except health insurance. The proposed “Office of National Insurance” would reside within the Department of the Treasury primarily to "monitor all aspects of the insurance industry." The Office would also establish federal policy on international insurance matters and have the authority to determine whether state insurance laws would be preempted in favor of new national laws or international insurance agreements.

So how is a potential shift toward federal rather than state control of insurance viewed by the industry? And what is it likely to mean for the day-to-day interactions between collision repair shops and insurers?

Though its level of activity related to the issue has waxed and waned somewhat over the past several decades, the Automotive Service Association has long been a proponent for the appeal of McCarran-Ferguson. As the only repairer association with a national lobbyist, ASA has also voiced support for a shift to federal regulation of insurance. The association this summer organized a “Washington, D.C., fly-in,” helping arrange for meetings with members of Congress for ASA members who traveled to the nation’s capital.

"There are members of Congress who want to help us with the federal regulation of insurance and the repeal of the McCarran-Ferguson Act, but collision repairers will have to communicate with their representatives to let them know they support these issues," Bob Redding, ASA lobbyist, said.

Part of ASA’s argument as to why collision repairers might benefit from a shift to federal regulation of insurance is that large consumer advocacy groups, which ASA believes will share shop views on insurance issues, are more active on a national than state basis. Indeed, two such groups, the Consumer Federation of America and the Center for Economic Justice, sent a 12-page letter to House and Senate leaders this summer calling for broader federal insurance oversight.

"The insurers, who have long called for greater uniformity in insurance regulation, demonstrate that they only seek uniformity that lowers consumer protection while they oppose uniformity that might actually help consumers,” the group’s letter stated.

But unlike ASA, other groups representing shops are not as convinced federal regulation of insurance would be a positive shift.

Rollie Benjamin, who chairs the Society of Collision Repair Specialists (SCRS) legislative committee, said the association has not yet taken a formal position on the issue, but he believes the majority of the committee and the association's leaders prefer maintaining oversight of insurance at the state level where repairers have more opportunities to educate and build relationships with lawmakers and regulators.

Benjamin also said the Alliance of Automotive Service Providers (AASP) is generally in favor of state regulation because of the enormous expense of trying to enact change in laws or policy at the federal level. Indeed, the Alliance of Automotive Service Providers of Minnesota (AASP-MN) issued a statement this summer pointing out that the insurance industry is second only to the pharmaceutical industry in federal lobbying expenditures.

“It is much easier for repair shop representatives to get to know their state legislators than it is for them to get the time and attention of their Congressperson and U.S. Senators,” the association statement said. “Mobilizing national media outlets or consumer organizations to become engaged in the relatively obscure nuances of insurer claims settlement practices would be a daunting task.… Bringing a claim in a federal regulatory scheme would likely present a greater burden to consumers and repair shops than is the case in the current state regulatory approach.”

Given the split in views among repairer groups, it is perhaps not surprising that there are varying views of federal regulation among insurers as well. Speaking at the Collision Industry Conference (CIC) this summer, Tom Litjen, a lobbyist for the Property Casualty Insurers Association of America (PCI), said that group's member companies are split on the issue. Federal regulation of life insurance for example, is more appealing to some insurers than federal oversight of property-casualty insurance.

Litjen said that he doesn't expect proposed federal legislation creating federal oversight of insurance to pass in the next couple years - in part because some members of Congress are former state legislators who aren't interested in entering back into the role of insurance overseers. But he said federal regulation may be "inevitable" over the next decade or so – in part because European insurance companies are interested in entering the U.S. market but are less apt to do so if they have to deal with 50 different sets of state regulations.

Litjen told repairers at CIC, however, that he does no think at least one of the options being discussed in Congress - the optional federal charter for insurers - would give repairers the "relief you seek with federal regulation" of insurers. An optional federal charter, he said, may just allow insurers to bounce back and forth between federal and state regulation based on whichever looks more favorable.

“I understand that many in your industry feel as though we in the insurance industry collude, conspire, scheme to take advantage of auto repair facilities,” Litjen said. “I don’t believe that happens but you certainly have a right to petition your state Attorneys General, as you have in Connecticut and other states, to investigate our trade practices.”

Litjen is referring to yet another effort to spur federal oversight of insurance: a national petition effort, led by the Auto Body Association of Connecticut, asking U.S. Attorney General Eric Holder Jr. to "enforce federal antitrust laws so as to protect consumers and small business owners from the anti-competitive effects of unlawful conspiracies in the collision repair market.” The petition states that antitrust laws and the terms of a 1963 consent decree - in which insurer groups agreed not to engage in certain actions including suggesting that any person do or not do business with any appraiser or shop - are not being enforced.

Steve Regan of the Massachusetts Auto Body Association believes now is a good time to renew efforts to have the 1963 consent decree enforced. During the Bush administration, the Justice Department did not file a single case against a major firm for violating the anti-monopoly law. But the Obama administration has made clear plans to restore a tougher enforcement policy against companies violating anti-monopoly laws.

Christine Varney, the head of the Justice Department's antitrust division, for example, has asserted in several speeches this year that recessions can provide dangerous incentives for large companies to engage in predatory behavior. Varney said that the Obama administration believes it was a mistake during the outset of the Great Depression to relax antitrust enforcement, enabling large companies to engage in pricing, wage and collusive practices that weakened competition and harmed consumers.

With the myriad legislative, administrative and judicial discussions of various types of potential federal oversight of insurers, it can prove challenging just to follow the progress and players on both sides of each effort. But given the impact that any shift from state- to federal-regulation could have, it’s an issue the collision industry should continue to track.   o

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