Insurers Prepare a Battle Strategy to Protect a Key Exemption

By Jeffrey H. Birnbaum
Tuesday, February 27, 2007

The insurance industry is one of Washington's fiercest and best-funded lobbies, so it rarely gets surprised. But last week several industry representatives privately acknowledged amazement that their most important federal benefit -- an antitrust exemption -- is in danger.

Angry with how insurers have been treating Hurricane Katrina victims and others, the chairman and the ranking Republican on the Senate Judiciary Committee, Sen. Patrick Leahy (D-Vt.) and Sen. Arlen Specter (R-Pa.), as well as Senate Majority Leader Harry Reid (D-Nev.), have joined forces to propose a repeal of the 62-year-old exemption, known as the McCarran-Ferguson Act.

"This is the big one," said Carl Parks, senior vice president of the National Association of Mutual Insurance Companies and a leader in the effort to save the exemption. "We are upset and disappointed."

The insurers say they are doing nothing wrong. Yet lawmakers are outraged on behalf of constituents who believe they have not been properly compensated for their property losses.

Sen. Trent Lott (R-Miss.), who lost his house during Katrina and is a co-sponsor of the legislation, has said that even "the nightmares of FEMA" did not prepare his constituents for their "abandonment by insurance companies."

McCarran-Ferguson provides insurers with an exemption from federal antitrust laws so that thousands of companies can exchange and aggregate data on accidents and injuries. They use that information to formulate the rates they charge their customers.

The exemption can operate only if states regulate the insurers, and lately a growing number of lawmakers have complained that some states have failed to do so. Hence the legislation -- and its companion bill in the House -- which would repeal the exemption and impose regulation by the consumer-focused Federal Trade Commission.

Large insurers that have enough data to set rates themselves have been proposing a modified repeal of McCarrin-Ferguson for years, but only if companies can opt to replace state regulation with a more compliant captive federal regulator. The new legislation, however, would add stiff federal regulation on top of the state regimen.

"The concern is that the industry could end up with double regulation," said Stanton D. Anderson of the U.S. Chamber of Commerce.

Insurers are beginning to muster their forces for an epic battle. Some of the bigger firms are hoping that the friendly-federal-regulator option will emerge somehow. But Parks and others who represent smaller insurers are not taking any chances.

The National Association of Mutual Insurance Companies has already created a "war room" that is targeting the districts and states of lawmakers who might be sympathetic or persuadable. It is hunting for insurers with employees in those places whom they can train to lobby their elected representatives. A broad coalition of insurance lobbies is also in the offing.

Parks, 60, knows this ground well. He has worked in public affairs for the insurance industry on and off since 1969, first for Allstate and later for the Property Casualty Insurers Association of America. In between, he helped the Credit Union National Association stage a huge grass-roots lobbying effort that persuaded Congress to pass a bill overturning a Supreme Court decision that would have hamstrung credit unions.

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