Saving You Money For Life

It’s something you probably wouldn’t know unless you’re a law student or involved in a lawsuit with an insurance company, but the industry holds an exemption from federal antitrust laws. The history of this exemption and how it came about goes back through the entire history of antitrust legislation, but the definition of the exemption for the insurance industry stems from the McCarren-Ferguson Act of 1945 – the last major law enacted on the issue.

The law states that exempt activities must meet these three tests: (a) constitute the “business of insurance”; (b) be “regulated by State law”; and (c) not constitute “an agreement to boycott, coerce, or intimidate, or [an] act of boycott, coercion, or intimidation.”

Generally, these requirements have been defined by a series of cases in the years following passage of the McCarren Ferguson Act. If you’re wondering why the industry is so homogeneous, here’s a telling segment of a report delivered to Congress by the General Accounting Office in 2005:

“For example, ratemaking and related activities deemed by courts to constitute the business of insurance have included concerted actions among insurers to set agent commission rates; to fix the rates of various types of insurance pursuant to joint agreements and rating boards; to classify and re-classify risks; to agree to pay damage claims on the basis of agreed-upon labor rates; to limit or refuse to offer certain types of coverage; and to jointly undertake activities to limit risks by, among other things, revising policy language.”

That’s why they come and go as they please and write your policy in their best interests. There’s no room for negotiation because there doesn’t have to be.

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