For the first time, consumer groups and banks, environmentalists and small businesses, builders of shopping centers and the Federal Trade Commission, state legislators and attorneys general and feminist organizations and unions are working together in Washington. Not because they love each other -- they don't -- but because they have all been hurt by a common enemy: the McCarran-Ferguson Act, the federal law that allows insurance companies to price fix.
If two candy stores agreed that they would sell candy bars for 60 cents, they could both go to jail for three years. But McCarran-Ferguson allows Prudential (with assets totaling $93.1 billion) and State Farm (assets $30.3 billion) to agree on the auto insurance rate they will charge a 25-year old male in Northeast Washington who drives a 1980 Toyota to work.
The McCarran-Ferguson Act also allows insurance companies to do the following without fear of antitrust prosecution:
Raise prices in concert -- by 500 percent or 1,000 percent or even more.
Refuse to sell one type of insurance to an individual unless he also purchases another type.
Have an organization wholly owned by insurance companies issue a rate for a certain type of insurance and require all companies to charge that rate.
Insurers admit that they can do all of these things, but maintain that in fact they don't.
For example, they claim that insurance rates rose dramatically last year not because insurers colluded but because juries and judges were requiring them to pay out greater amounts in personal injury cases than they ever had before.
But insurance prices rose by $60 billion last year, while the cost of the entire civil justice system -- including verdicts and settlements, lawyers' and judges' salaries, overhead and everything else -- was less than half that amount, according to the industry-funded Rand Institute for Civil Justice.
Insurers also claim they do not refuse to sell one type of insurance unless the buyer also buys another type of insurance. But our organization recently received a copy of a letter from Allstate to one of its policy holders, notifying him that if he wished to continue buying personal umbrella coverage from Allstate, "the primary liability coverages afforded by the homeowners and auto policy must be with Allstate."
Finally, insurers claim that companies do not actually charge the rates published by the industry rate-making organizations, known as rating bureaus. But the constitution of the National Council on Compensation Insurance, the rate-setting organization to which all workers' compensation insurers belong, provides that "each member shall . . . adhere to all filings made by the National Council on its behalf with state supervisory authorities." And even when the rating bureau does not expressly require each company to charge the rate it issues, many companies use that rate as a benchmark. For homeowners' coverage of $150,000 in the District in September 1986, for example, the rate bureau rate was $417; Firemen's Insurance Co. charged $417; Republic charged $417; Travelers charged $414; and State Farm charged $404.
The antitrust exemption also allows insurance companies to require, and insurance agents to agree, that all agents will charge the same commission. Laws requiring such arrangements -- misleadingly known as "fair trade" laws -- have been abolished in virtually all industries, resulting in the rise of discount stores. But they have not been abolished in the insurance industry -- where there are no discount stores.
Those seeking repeal of the insurance industry's antitrust exemption do so for different reasons. Small businesses, consumers and unions have seen their insurance rates rise because of the exemption. Feminists believe that the exemption makes it easier for insurers to get together to discriminate on the basis of sex. Environmentalists see the exemption as facilitating collusion in insuring nuclear power plants; banks, which would like to be able to sell insurance (they are generally prohibited from doing so by state law), do not want the insurance industry to have a special privilege they don't have. And law enforcement officials, whether state or federal, want to prevent price-fixing -- whether by candy stores, manufacturers, insurers or anyone else.
The last three presidential administrations have strongly urged repeal of the antitrust exemption for insurance. President Reagan's Federal Trade Commission chairman, Daniel Oliver, has been particularly critical of it.
Yet calls to repeal the exemption have never been taken seriously because of the industry's political power. Insurance is a $400 billion industry accounting for 13 percent of gross national product (Americans spend more on insurance than anything else except food and shelter). It employs more than 2 million people, and it has more lobbyists and contributes more money to political campaigns than any other industry. And insurers have always cared more about retaining the exemption than opponents have cared about repealing it.
But this year may be different. Because of the sudden, dramatic and unjustified insurance price increases of the last two years, bills to repeal the insurance industry's antitrust exemption are getting serious consideration in both houses. After 42 years, Congress may finally be realizing that if it is illegal for two candy stores to fix prices, it should also be illegal for State Farm and Allstate to fix prices.
Bob Hunter is president and Jay Angoff counsel of the National Insurance Consumer Organization.