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Length: 10 minutes
Transcript
Congress is debating whether to repeal the McCarran-Ferguson Act and thereby weaken the authority of states to regulate the insurance industry. Controversy over property/casualty claims spawned by hurricane Katrina focused federal attention on the act. In lieu of state oversight, the Federal Trade Commission and Department of Justice (both of which lack the states' regulatory expertise) would have greater authority to enforce insurance regulations and investigate alleged violations.
In June's Advocacy podcast, Michael Kerley, senior vice president of federal relations at NAIFA, and Jill Edwards, NAIFA's director of federal relations, discuss the recent government effort to repeal the federal antitrust exemption for insurance in the McCarran-Ferguson Act and the impact this could have on the insurance industry and your bottom line. To become more familiar with the McCarran-Ferguson Act, listen to the podcast and find out what the Act says, why it's so important to your business, and why NAIFA is opposed to its repeal.
NAIFA McCarran-Ferguson Podcast
June 1, 2007
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HOST: Welcome to NAIFA's podcast, an ongoing series of interviews that allow our members to quickly learn about important legislative and regulatory issues and what NAIFA’s doing to protect your business interests. This is Andy Moyer, communications producer for NAIFA.
Right now, the McCarran-Ferguson Act is a hot topic in Washington, D.C. It’s a law that reaffirms state – not federal – but state jurisdiction over insurance regulation. Recently, there were calls by some in Congress to repeal McCarran-Ferguson. In the next few minutes, you'll learn more about the Act, why it's so important to your business, and why NAIFA is opposed to its repeal.
To become more familiar with the McCarran-Ferguson Act, we'll be talking with Michael Kerley, senior vice president of federal relations at NAIFA, and Jill Edwards, NAIFA’s director of federal relations. Mike, Jill, thank you for joining us today.
First of all, Mike, can you please explain the McCarran-Ferguson Act?
MIKE KERLEY: The McCarran-Ferguson Act came about in 1945 because the year earlier, the Supreme Court rendered a decision that undercut state regulation of the insurance business. Historically, insurance has been state regulated business. So in 1945 we, and other entities in the insurance industry, convinced the congress that we needed to have protection from federal intervention into the state regulatory system. So the McCarran-Ferguson Act was the result of that effort. It is simply safe to say, that were it not for the McCarran-Ferguson Act being in place today, the federal government, not the state government, would regulate the business of insurance.
HOST: Jill, if the Act has been in place since 1945, why the sudden interest now to repeal the insurance antitrust exemption?
JILL EDWARDS: Well, for many times, the congress has wanted to go in and repeal the limited anti-trust exemption. And I really underscore limited because it's limited to the extent that the state anti-trust laws don't apply. But in this case, in the post-Katrina era and the number of law suits that have been filed along the Gulf Coast over the issue of whether or not the wind or the water caused the damage and the denial of claims resulting from that debate there have actually been a couple members of congress who were a part of those lawsuits because they lost their home. And so they are helping to drive an effort to repeal the insurance anti-trust exemption because they believe, and I underscore the word believe, that insurers colluded to deny legitimate claims along the Gulf Coast.
HOST: And, why should NAIFA members care about the McCarran-Ferguson Act?
JILL EDWARDS: NAIFA members should care primarily for two reasons: One, for those who are multi-line agents. On the property causality side of the business, there is allowed information sharing through the ISO, which is sort of the entity that many of our members are familiar with that allow companies to share loss data. So that if a small or a mid-size company is entering a new market they have a sense of what their potential risk is so they can price their premiums. And through the sharing of data under McCarran and because the states are regulating it, that has allowed more competition to exist.
For the life side of the business there is a provision of the bill that would allow the federal trade commission to come in and selectively investigate insurance practices that have long been vetted and approved by the states. In essence you are creating another layer of federal investigations and authority over state regulation of insurance and in an environment where insurance commissioners, state governments, federal officials, insurance companies, agents, all agree that the current system of insurance regulation is inefficient, this is going to create more problems, not fewer. And at the end of the day, it's going to help put mid-size and small property casualty practices out of business if they are unable to share that loss data.
HOST: Do you want to add anything to that Mike?
MIKE KERLEY: Yeah, Andy, thank you. In addition to the regulatory indecision and the chaotic environment that Jill is talking about, there is another element at risk here. And that is of never ending lawsuits. Because McCarran was passed over 60 years ago, almost all of the legal issues have been settled, in fact I would have to say, all the legal issues have been settled. If we remove the McCarran-Ferguson Act or if you amend it substantially, all those legal questions are going to have to be re-litigated. I just want to say this will be a trial lawyer's dream come true.
HOST: So what is NAIFA doing about it?
MIKE KERLEY: The first thing that NAIFA's doing about it, is educating our members Andy. It's been 27 years since this issue has been front and center for our members. We had a real dust up with the McCarran-Ferguson Act in 1980. So what we have to do is educate our members and we’re doing that via our Frontline legislative reports and via articles in Advisor Today and via speeches and presentations to NLCs [National Leadership Conference] and so on.
The second thing we are doing is educating members of congress. In all of my years here at NAIFA, I must tell you that this issue has more people confused on Capitol Hill than any other issue I have ever encountered. There is almost no institutional knowledge about what the McCarran-Ferguson Act is and what it does. So that's our second major component. And so Jill and I have been going around the Hill for the last couple of months actually and educating key members of congress on what McCarran-Ferguson Act, how it works, what it does, and why monkeying around with it is not a good idea.
HOST: Well, in light of what Mike said, Jill, what can our members do at the grassroots level to help illustrate NAIFA’s position on this issue?
JILL EDWARDS: Well, first of all, for those who are listening to this podcast, and you have friends and colleagues who will be concerned about this issue, we encourage you to let them know about this podcast because it is an easy way to hear about the issue, rather than read pages and pages of documents. We have an insurance regulatory reform website in which we include a section on this very topic and we encourage our members to stay informed and part of being a NAIFA member is at the grassroots level because ultimately you're the constituents of the members of congress and senators, not Mike and I. We only have our two senators and our congressmen at home too, just like you do. At the end of the day, members of congress need to know why it's important to the people that vote for them. You have to tell them that it's important to you. And that's why, through our Political Involvement Committee, through IFAPAC, we encourage our members to meet with their members in the districts and tell them what's important. And that's a very important part of this process.
HOST: Great input Jill, I really appreciate that. Hopefully a lot people listening to this podcast will spread the word and get other people to listen as well. Do you know of other ways NAIFA members can stay informed on the McCarran-Ferguson Act Mike?
MIKE KERLEY: The most important thing for NAIFA members to remember is that legislative advocacy is an activity; it's not passive. So anyone listening to this podcast, we urge to basically take the initiative and learn about this issue by simply making use of the tools that are available to them. In addition to Advisor Today magazine, which comes to your door, in addition to the NAIFA Frontline legislative reports, which come in your email, we have a website devoted to this. The address is simply, naifa.org/advocacy/irr. There is everything you've ever wanted to know about this issue; right there at a click of a mouse, it can't be easier. But the first and foremost thing NAIFA members must remember is that this is a contact sport. It's not something you can just sit back and watch on Sunday afternoon.
HOST: Excellent comments Mike, thank you very much. And Jill, thank you for being here also. We appreciate both of you being a part of this podcast.
JILL EDWARDS: Thanks for having me.
MIKE KERLEY: It was our pleasure!
HOST: Success in defeating this proposal relies on grassroots efforts and strength in numbers. This means you, our NAIFA members, need to get involved. As we said before, you can continue to learn about this issue at the NAIFA website. Once you've learned about this information, you can contact your legislators. This can be done very easily by clicking on the contact your member of congress icon located in the advocacy section of NAIFA's website. Thanks for listening and be sure to check back at the beginning of every month for our next podcast.
Membership in NAIFA is all about your success. We give you the tools you need to grow your business and propel your career as an insurance or financial advisor. Learn more about becoming a NAIFA member and join today at www-dot-naifa-dot-org-slash-join.
This 2007 podcast is a copyrighted production of the National Association of Insurance and Financial Advisors. All rights are reserved.
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