Last Updated: 4/1/2026 

For much of U.S. history, insurance regulation has been handled by the states rather than the federal government. This approach is rooted in a series of court decisions and federal laws that continue to share how insurance markets operate today. 

In 1869, the U.S. Supreme Court ruled in Paul v. Virginia that insurance was not interstate commerce and therefore was not subject to federal regulation under U.S. Constitution’s Commerce Clause. As a result, insurance regulation was largely left to the states for many decades.  

In 1944, the Supreme Court overturned this precedent in United States v. South‐Eastern Underwriters Association, concluding that insurance is interstate commerce and could be regulated by Congress.  

In response to this decision, Congress passed the McCarran-Ferguson Act in 1945.The bill was sponsored by U.S. Senators Pat McCarran (D-NV) and Homer S. Ferguson (R-MI) and was signed into law by President Franklin D. Roosevelt. The law preserves the states’ primary role in regulating and taxing the business of insurance. 

The McCarran‐Ferguson Act provides that federal laws should not be interpreted to invalidate or interfere with state insurance laws unless Congress clearly says otherwise. In simple terms, the Act gives states the lead role in insurance regulation unless Congress explicitly chooses to step in. This framework remains in place today. It has been reaffirmed in later federal laws including the Gramm‐Leach‐Bliley Act (GLBA) and the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd‐Frank Act).   

The Act also affects how federal antitrust laws apply to the business of insurance. Under McCarran-Ferguson, federal antitrust laws generally do not apply to the business of insurance when states actively regulate it. However, if states do not regulate certain insurance activities, federal laws such as the Sherman Act, the Clayton Act, and the Federal Trade Commission (FTC) Act still apply.  

After McCarran-Ferguson was enacted, state insurance regulators worked together through the NAIC to strengthen state-based regulation. During this period, state insurance regulators developed model laws that formed the foundation of today’s insurance rating laws. These laws address how insurance rates are set and reviewed, require that rates not be excessive, inadequate, or unfairly discriminatory, and establish rules for rate filings and approvals. They also prohibited certain trade practices like offering rebates. 

Today, discussions about deregulation often focus on reducing regulatory burdens on businesses. However, deregulation can have unintended consequences. Designing the appropriate and careful regulation of the business of insurance to ensure solvency, promote competitive markets, and ensure sound consumer protection can be challenging.  

Under McCarran-Ferguson, there are two contingencies affecting the delegation of authority. First, Congress can enact legislation applicable to the business of insurance by mentioning it in a bill and affirmatively stating that the legislation applies to the business of insurance. Second, when the states do not enact or maintain laws to regulate the business of insurance, such regulation is left to Congress under the Sherman Act, the Clayton Act, and the FTC Act.  

This means that removing state regulation does not necessarily result in less regulation overall. Instead, regulatory authority may shift from the states to the federal government.  For example, sharing loss data among insurers, an activity that supports accurate rate development, could violate federal antitrust laws. Organizations such as the Insurance Services Office (ISO) and the National Council on Compensation Insurance (NCCI) can operate as they do today only because their activities occur within a state-regulated framework. 

In short, state insurance regulation plays a critical role in balancing competition, consumer protection, and insurer solvency. Understanding the McCarran-Ferguson Act helps illustrate why insurance regulation in the U.S. follows a distinct model and why shifts away from state insurance regulation can have broader legal impacts.