Issue

A U.S. Supreme Court decision in 1869, Paul v. Virginia, stated that insurance is not interstate commerce subject to the Commerce Clause in the U.S. Constitution. As a result, the regulation of insurance was left to the states until 1944. A later U.S. Supreme Court decision, United States v. South‐Eastern Underwriters Association, overturned the earlier ruling, concluding that insurance is interstate commerce. 

To remove any uncertainty over states’ regulatory authority over insurance created by that decision, the NAIC proposed a bill sponsored by U.S. Senators Pat McCarran (D-NV) and Homer S. Ferguson (R-MI) that would keep insurance regulation in the hands of the states. Versions of the bill passed both the U.S. House of Representatives (House) and the U.S. Senate (Senate), and it was signed into law by President Franklin D. Roosevelt in 1945. 

The McCarran‐Ferguson Act is as relevant today as it was when it was adopted. It contains the basic delegation of authority from the U.S. Congress (Congress) to the states regarding the regulation and taxation of the business of insurance. It has been declared the law of the land in the federal Gramm‐Leach‐Bliley Act (GLBA) and the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd‐Frank Act). 

Overview

The McCarran-Ferguson Act declared “that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several states.” It stated that from then on, “no Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any state for the purpose of regulating the business of insurance.” 

The McCarran-Ferguson Act also limited the application of the antitrust laws to the business of insurance, if and to the extent that, state law regulates the business of insurance. However, if states do not regulate insurance, the Sherman Act, the Clayton Act, and the Federal Trade Commission (FTC) Act still apply. 

Following the passage of the McCarran-Ferguson Act, state insurance regulators working through the NAIC began creating the legal framework needed to strengthen state regulation and limit any future intervention by the federal government. Through their coordinated national effort, state insurance regulators were able to impose stronger price regulations than the industry would have otherwise accepted. 

The model laws enacted in that period introduced the frameworks for the rating laws in place today. They included several concepts, including the formation, licensing and regulation of rating organizations; the rate standards that rates should not be excessive, inadequate or unfairly discriminatory; and the requirements for the filing and approval of rates and rating systems. Also included was a prohibition against giving rebates. 

In today’s world, there is much discussion of deregulation and making things easier for businesses. 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. It is important for the insurance industry, consumers, insurance producers, and state insurance regulators to remember that the deregulation of the business of insurance is unlike the deregulation of any other sector of the economy. The congressional delegation of authority to the states is a contingent delegation of authority. 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. 

Thus, the deregulation of aspects of the business of insurance may be accompanied by some unanticipated outcomes with respect to antitrust laws. For example, sharing loss data among competitors, as is done through advisory organizations, would be considered an antitrust violation. Organizations such as the Insurance Services Office (ISO) and the National Council on Compensation Insurance (NCCI) can only exist under the active state regulation of the products they produce and the information they collect. In addition, if state insurance regulators fail to regulate, the insurance industry does not become deregulated, but the regulatory authority passes to the FTC. 

Status

In January 2021, President Trump signed the “Competitive Health Insurance Reform Act of 2020”.  This eliminated the anti-trust exemption for health and dental insurers and adds a layer of federal oversight to the existing state-based framework. The NAIC opposed the legislation as redundant to the consumer protection guardrails already in place at the state level and for the potential for increased costs for both insurers and consumers.  

The Government Relations (EX) Leadership Council coordinates the NAIC's ongoing work with the federal government and state government officials on legislative and regulatory policy. Among its 2021 charges is to advocate for NAIC objectives and the benefits and efficiencies of state-based insurance regulation.