Chapter 12: State Regulation of Insurance

History of Insurance

McCarran-Ferguson Act

The US Congress enacted the McCarran-Ferguson Act in 1945. It made the insurance industry largely immune from federal regulation. It is the only law through which Congress explicitly assigned to the states the role of regulating an industry. It is also the only law where Congress explicitly denies regulation of an industry by the federal government.

The McCarran-Ferguson Act states in part that, "the business of insurance...shall be subject to the laws of the several states," and that, "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 law carves out federal authority over antitrust issues to the extent state regulations do not address them. Antitrust laws are intended to promote fair competition among businesses and within industries. Antitrust laws present a unique challenge to the insurance industry. For example, property and casualty insurers need to be permitted to share loss information to enable accurate product pricing. This information sharing would normally break antitrust laws. Also, the industry needs standardized forms so consumers can comparison shop. This, too, would run afoul of antitrust laws.

The courts have determined that the business of insurance is exempt from antitrust laws if the action spreads risk for policyholders, is part of a contract of insurance, and is exclusively limited to insurance industry participants. This definition allows insurers to cooperate in setting rates and creating forms.