In the latter half of the 19th century, dramatic growth in the fire insurance industry led to increased interest by the states in the regulation and taxation of insurance companies. In response, insurance companies, seeking to avoid such regulation, challenged the states’ authority to regulate the insurance industry, contending that such regulation constituted a violation of the Commerce Clause. However, in Paul v. Virginia, the United States Supreme Court rejected the insurers’ position, holding that the Commerce Clause did not preclude the states from regulating insurers. In the wake of the Paul decision, state regulation of insurance increased significantly. Then, in 1944, the United States Supreme Court, in United States v. South-Eastern Underwriters Association, effectively overruled Paul, holding that insurance is interstate commerce and should be regulated under the Commerce Clause. In response, the very next year, Congress enacted the McCarran-Ferguson Act. Under the McCarran-Ferguson Act, the regulation of the insurance industry remains with the states. However, the Act also largely exempts the insurance industry from the federal antitrust laws. The issue is whether the insurance industry should be treated so differently from other industries as to enjoy exemption from the federal antitrust laws.

Congress is considering legislation that would amend the McCarran-Ferguson Act and the Federal Trade Commission Act. S. 618, introduced by Senate Judiciary Committee Chairman Patrick Leahy (D-VT) and Ranking Member Arlen Specter (R-PA) on February 15, 2007, would authorize the application of the federal antitrust laws to unfair methods of competition by insurance companies. The Federal Trade Commission Act, as it relates to areas other than unfair methods of competition, would be applicable to the business of insurance to the extent that such business is not regulated by state law. S. 618 would not preempt or otherwise affect the ability of states to regulate or tax the business of insurance. Unlike previous legislative proposals in earlier Congresses, S. 618 would not establish “safe harbors” setting forth the practices of insurance companies that would remain exempt from the antitrust laws. Instead, the bill would allow the Justice Department and the FTC to issue joint statements of their antitrust policies regarding joint activities relating to the business of insurance. The Senate Judiciary Committee held a hearing on S. 618 on March 7, 2007. A House companion bill, H.R. 1081 was introduced by Congressman Peter DeFazio (D-OR) and was referred to the House Energy & Commerce, Financial Services, and Judiciary Committees. In the last Congress the Senate Judiciary Committee held hearings on whether the exemption should be repealed. Senator Leahy has introduced legislation to repeal the exemption for medical malpractice insurance.

• The perception is widely held that the McCarran-Ferguson Act permits insurers to manipulate the insurance mechanism and collude on the price of insurance and these perceptions impede consideration of other proposals which may hold greater promise of addressing availability and affordability problems which historically has occurred in cycles.


• Congress has, in the past, eliminated exemptions for many industries with the demonstrable result that competition increased and flourished after the elimination of the exemption. The American economy, its consumers and the insurance industry will benefit in the long-run from the discipline of free and open competition among insurers.


• The competitive nature of insurance markets can be enhanced, consistent with necessary joint activities and consistent with state regulation in our federal system, to the benefit of all segments of America’s society. Legislation to repeal the McCarran-Ferguson antitrust exemption and replace it with the safe harbors recommended by the ABA promises to serve consumers by promoting competition in the insurance industry.


• Competition is the hallmark of the American economy. The United States has very successfully spread the gospel of competition to the rest of the world – with remarkable results in international acceptance and enforcement over the past ten years.

The American Bar Association supports repeal of the McCarran-Ferguson Act, which largely exempts the insurance industry from the antitrust laws. The ABA believes that the law should be replaced by a series of safe harbors recommended by the ABA to make clear that certain types of conduct by insurers are pro-competitive and beneficial to the American economy. Other than the safe harbors, the ABA believes that insurance industry should be subject to the same antitrust rules as other industries. The ABA also believes that states should retain the authority to regulate the business of insurance.