Note: This is the first of a two-part series on the McCarran-Ferguson Act.
The McCarran Ferguson Act was born during a time of rapid expansion in the American insurance industry. In the early 19th century, a need for government regulation became crucial due to major accidents and increased competition that threatened the viability of many American companies.
Paul v. Virginia was the first case to lay the groundwork that would eventually lead to the passage of the McCarran Ferguson Act. 1 In Paul the Supreme Court held that "issuing an insurance policy is not a commercial transaction." Subsequent decisions interpreted this ruling to mean that the federal government had no power to regulate the insurance industry under the trade provision of the United States Constitution. 2 As a result of this interpretation, no federal regulation of the insurance industry was adopted for the next 75 years.
In the United States v. South-Eastern Underwriters Association the Supreme Court revised the validity of the interpretation and noted that the issue was addressed in Paul was not really whether Congress had the power to regulate insurance business under the Commercial Code. , but rather if the trade provision excludes state regulation. 3 South-Eastern Underwriters Association the court held that the insurance industry was suitable for federal regulation under the Commercial Code. This holding created widespread controversy and confusion. Whereas insurance companies had previously demanded federal regulation, they had now seen government regulation as the lesser of two evils. Insurance companies feared that pricing and other anti-competitive behavior that they have been involved in since Paul would now be banned under the Sherman Act.
Impact on the Insurance Industry: States Decide
President Roosevelt signed the McCarran-Ferguson Act into law on March 9, 1
Under the McCarran-Ferguson Act, insurance companies are protected from prosecution under federal antitrust laws. States have allowed to regulate virtually all aspects of insurance, from licensing to market practices to financial solvency, and all insurance activities are subject to supervision. This has not always proved to be the best thing for policyholders. In recent decades, insurance companies have profited by dramatically increasing their profits by coordinating prices across levels of competition.4 Although insurance brokers in each state retain the right to review prices, these rights are not actively exercised in states that have adopted competitive ratings or laws of use. and archiving. Therefore, McCarran has allowed insurance companies to keep premiums artificially high at the expense of insureds.
To learn more about the impact the McCarran-Ferguson Act has had on policyholders, stay tuned to the second part of my series next week.
1 Paul v. Virginia 75 US 168 (1869).
2 New York Life Ins. Co. v. Deer Lodge County 231 U.S. Pat. 495, 510-12 (1913); New York Life Ins. Co. v. Cravens 178 U.S. Pat. 389, 401 (1900); Hooper v. California 155 US 648 (1895).
3 USA v South Eastern Underwriters Ass & # 39; n 322 US 533, 534, 544 (1944).
4 https://thehill.com/blogs/congress-blog/economy-a-budget/292405-repeal-mccarran-ferguson-before-its-too-late?amp