U.S. Senator Trent Lott Press Office by zly32307

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									3/7 SENATOR LOTT ADVOCATES REPEAL OF INSURANCE INDUSTRY'S
ANTITRUST EXEMPTION
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March 7, 2007
WASHINGTON, D.C. – Contending that every corporation should be required to comply with U.S.
antitrust laws, U.S. Senator Trent Lott of Mississippi, the Senate Republican Whip, made a rare
appearance before a Senate committee Wednesday to advocate the repeal of the insurance industry’s
antitrust exemption under the McCarran-Ferguson Act.


Senator Lott testified before the Senate Judiciary Committee that he was compelled to co-sponsor
legislation mandating the repeal after learning, in the wake of Hurricane Katrina and the myriad of
insurance problems which beset South Mississippi property owners, that insurance companies are the only
corporation, besides sports leagues, exempt from antitrust laws.


His legislation would place the property/casualty insurance industry under federal oversight via the Federal
Trade Commission to ensure that insurance companies do not participate in price fixing and other unfair
business practices.


“Some have said I’m just angry about losing my home,” Senator Lott told the committee Wednesday about
his support for the bill. “They’re right. But let me tell you. The Good Lord made sure I lost my house, so
that I would feel the pain of friends and neighbors along the Coast who lost theirs – all 37,000 of them.”


Senator Lott said that as he witnessed the behavior of the insurance industry in their response to Katrina
policy holders which left thousands of homeowners with a slab, a mortgage payment but no insurance
policy payout, he became curious about the history, rationale and wisdom of such a broad exemption from
federal oversight. “When I researched the history of the exemption, I was astounded by what I found,” he
said.


Until 1944, Senator Lott said regulation of the business of insurance resided securely with the States,
based on the rationale that this business did not meet the legal definition of “interstate commerce.” That
year, the insurance industry was turned on its head by the Supreme Court in the case of United States v.
South-Eastern Underwriters Association. By signaling that the business of insurance is “interstate
commerce,” the case brought about a knee-jerk reaction from Congress in a bill that would eventually be
known as the McCarran-Ferguson Act, Senator Lott said.


Soon after the Supreme Court decision, Senators McCarran and Ferguson introduced a bill that within two
weeks, and without any hearings, passed the Senate. The House of Representatives also passed a similar
measure with little debate. A review of the Congressional Record shows clearly that the intent of both
houses was to provide only a temporary moratorium rather than the permanent exemption. -
It was while the bill was being discussed by the conference committee that a seemingly innocuous phrase
was inserted. It was this modification – not in either the House or Senate versions of the bill – that when
judicially interpreted, turned a temporary moratorium into a permanent exemption, he said.
The House approved the conference report without debate. The Senate finally debated the conference
report for two days. Again, the record of the debate clearly shows that a permanent exemption was not the
intent of those who voted for its passage. So clear was this intent, Senator Lott said, that President
Roosevelt, upon signing the bill, stated the following in a press release: “After a moratorium period, the
antitrust laws… will be applicable in full force and effect to the business of insurance…”


So what happened, Senator Lott asked. The problem resides in the interpretation of the phrase “regulated
by state law.” Under the McCarran-Ferguson Act, insurers are exempt from federal antitrust scrutiny so
long as they are “regulated by state law.” Courts have interpreted this phrase to require only that state
regulations be on the books regarding particular conduct, regardless of whether their authority is ever
exercised.


In other words, Senator Lott concluded, joint conduct by insurance companies would not be subject to
antitrust scrutiny unless it was undertaken pursuant to a clearly articulated state policy that is actively
supervised by the state. As a result, anticompetitive conduct could escape both regulatory oversight and
antitrust scrutiny.


“For more than six decades, the insurance industry has operated largely beyond the reach of federal
competition laws,” Senate Lott testified. “I truly believe that the McCarran-Ferguson Act’s antitrust
exemption has allowed insurers to engage in anticompetitive conduct, and I can find no justification to
exempt the insurance industry from federal government oversight. Such oversight could help make certain
that the industry is not engaging in anticompetitive conduct such as price fixing, agreements not to pay, and
market allocations.


“Insurers may object to being subject to the same antitrust laws as everyone else, but if they are operating
in an honest and appropriate way, they should have nothing to fear. American consumers and American
businesses rely on insurance – it is a vital part of our economy – and they have the right to be confident
that the cost of their insurance, and the decisions by their insurance carriers about which claims will be
paid, reflect competitive market conditions, not collusive behavior.”


The next action for the Senate Judiciary Committee is to mark up and report out a bill for action by the full
Senate.



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