An issue that's been rearing it's head again lately centers around the McCarran-Ferguson Act — specifically, whether or not the 62-year-old act should be repealed.
Those for repeal feel repealing the act will help protect consumers and small businesses. Those against repeal feel repealing the act will lead to increased costs, which will be passed down to shops and consumers.
The act, enacted in 1945, was to permit states to regulate the insurance industry. Under the act, the "business of insurance" is exempt from federal antitrust statutes, since it is regulated by the states.
According to Trevor Hiestand, an attorney with Harper, Waldon & Craig in Atlanta who has closely followed McCarran-Ferguson, the "business of insurance" concerns what insurers do while setting rates and handling day-to-day business.
"When insurance companies deal with third parties, like body shops, it's not considered the 'business of insurance,' it's the 'business of insurance companies,' " says Hiestand. "Thus, McCarran-Ferguson by itself doesn't really affect the relationship between insurers and shops."
Because of that, says Hiestand, a repeal wouldn't really change anything. But, it would open up the floodgates for shops to file antitrust lawsuits against insurers when they feel mistreated — something that may not necessarily be a good thing.
"There is a long history of court cases that show how difficult it is to prove insurers engage in antitrust activities," says Hiestand. "Whether or not antitrust lawsuits against insurers can be successful remains to be seen."
Hiestand notes that courts have long said that common insurer practices — such as preferred provider networks, sending customers to certain shops, and only paying for certain parts and procedures — are not acts of antitrust, but simple competition.
Besides the unlikelihood of collision repairers winning an antitrust lawsuit against an insurer, there are other consequences. Hiestand says that increased lawsuits would lead to increased costs for insurance companies — costs that would ultimately be passed down to shops and consumers. On top of that, an influx of lawsuits could lead to reduced competition among insurers and, thus, fewer insurers due to consolidation.
"Shops know that fewer insurers means less money," says Hiestand.
Hiestand feels shops should educate consumers on repairs. If consumers know that certain insurance companies will only use certain parts or perform certain procedures, they may move on to an insurer with better options.
"There's enough insurer competition out there that a consumer may switch policies if they know what each insurer really offers," says Hiestand. "Consumers need to know just what their insurers are willing to pay for and that they have a choice in what shop to go to."
Despite the possible consequences, many favor a repeal of the act, including the Automotive Service Association (ASA), which has sent out press releases in support of legislators who are pursuing repeal. Sen. Patrick Leahy (D-Vt.) and Sen. Trent Lott (R-Miss.) have introduced legislation in the U.S. Senate supporting repeal. In the U.S. House of Representatives, Rep. Peter DeFazio (D-Ore.) and Rep. Gene Taylor (D-Miss.) have introduced companion legislation.
"The bottom line is, right now we do not know what anticompetitive acts insurers may be engaging in because the antitrust immunity insurers enjoy acts as a curtain that hides their activity from federal antitrust authorities," says Leahy.
Lott adds: "I truly believe that the antitrust exemption has allowed insurers to engage in anticompetitive conduct, and I can find no justification to exempt the insurance industry from federal government oversight. Such oversight could help make certain the industry is not engaging in anticompetitive conduct such as price fixing, agreements not to pay and market allocations."
Both the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCIAA) are against repeal, saying that since insurance is regulated at the state level, additional federal oversight would amount to duplicate regulation and more bureaucracy, ultimately resulting in higher costs and fewer insurance choices for consumers.
"It is important to note that insurance is not the only industry that is allowed an exemption," says Benjamin McKay, PCIAA's senior vice president, federal government relations. "A number of other industries that are otherwise regulated by specific statutes, including agricultural cooperatives, bank mergers, labor unions, stock exchanges and others, also have limited exemptions."
The insurance groups feel that allowing federal authorities to regulate the business of insurance would supplant existing state regulations that prohibit price-fixing agreements, protect policyholders against unsound rates and promote competition among insurers.
"An additional layer of federal regulation would drive up administrative and legal costs for insurers, and they would face onerous costs for data analysis that they can currently share," says McKay. "The end result of a repeal is that consumer costs would go up, and consumers would have fewer choices."
Robert Detlefsen, Ph.D., vice president, public policy, for NAMIC adds: "If the act is repealed, federal courts will have to grasp the complex economics of the insurance business and correctly distinguish between pro-competitive cooperative activity and anticompetitive cooperative activity. Even if courts get it right, insurers and policyholders will bear the expense of antitrust litigation. The big losers will be consumers."
Besides all the comments from industry groups and associations, several front-liners have been voicing their opinions.
Bob Smith, president of Storm Appraisal & Management Service, Inc., is taking a cautious approach. He'd like to see the antitrust exemptions removed, but also realizes that business will go on even if the act is repealed.
"I favor a repeal where we as an industry know that what we get to replace it is better than what we have," says Smith. "Bottom line, let's be careful we don't once again fall into a trap of getting what we ask for only to find that the alternatives are worse."
Marcy Tieger, principal with Symphony Advisors, LLC, states: "In a climate where consumers and insurers can easily obtain rate and pricing information on the Internet, a tool that did not exist when McCarran-Ferguson was enacted more than 60 years ago, one has to question the value of repealing the act and granting regulatory authority to an already burdened Federal government."
Dan Risley, executive director of the Society of Collision Repair Specialists adds: "Some of the data insurers are allowed to share under the act is essential in maintaining competition. That said, the act has allowed for abuse, and many insurers have used that to their advantage, which has had a profound impact on collision repairers. While a repeal is appealing, perhaps modifying the existing act will better address the collision repair industry's needs."
Congress has unsuccessfully attempted to repeal McCarran-Ferguson in the past, most recently in 1994. Whether it will happen again remains to be seen, but the Antitrust Modernization Commission recently released a report saying antitrust laws need to be modernized.
"This time around I think there's a very good chance McCarran-Ferguson will be altered somewhat," says Hiestand. "Most likely, insurers will still be able to share information, but the antitrust exemption will be removed."
Until — and if — a final decision is made, the collision repair industry will just have to wait and see.
