The McCarran-Ferguson Act allows for state regulation of insurance companies and exempted them from the antitrust laws except in limited circumstances. One of the big headscratchers for me in the health care debate was how single insurance companies could completely dominate a particular state, and I wondered why the DOJ never went after them, so I was surprised to learn of this exemption.
It seems that insurance was not considered commerce (for some reason) until a Supreme Court case in 1945, after which Congress passed the Act. According to this article, the main sponsor of the Act, Sen. Pat McCarran of Nevada, was thought to be the inspiration for the crooked Senator in The Godfather II. So it seems likely that the only rationale is that the insurance industry had key politicians in their pocket and managed to get this favorable legislation passed. Are there other reasons why insurance, of all industries, should enjoy an antitrust exemption?
Because insurance had historically been regulated by states, and because cost-sharing among insurance companies–which would be illegal under antitrust laws–was considered essential to promote competition.
Regarding the first point, state insurance commissioners were among the strongest lobbyists for McCarran-Ferguson. They wanted to continue to have the power to license insurance companies and to approve policy terms and rates, and they got what they wanted. Otherwise, with insurance considered interstate commerce, all state regulation would have been subject to federal pre-emption.
Regarding the second point, if you want to found a new insurance company, or expand an existing company into a new line of business, you are helpless without access to information about losses experienced by your competitors. Consortia such as ISO and NCCI had arisen to collect and publish such information. This would be considered price-fixing or concerted action among competitors under antitrust law, but it’s vital to the business of insurance. Ergo, the exemption.
Those are certainly rationales, but I don’t find them to be very convincing ones. Federal regulation doesn’t necessarily mean total preemption of state regulation. If certain actuarial data is needed to improve competition in the insurance market, the goverment could mandate the provision of key statistics by all insurance companies and make them available to the industry as a whole without needing to provide an antitrust exemption.