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Accountability * Integrity * Reliability
United States Government Accountability Office
Washington, DC 20548
B-304474
March 4, 2005
The Honorable Michael G. Oxley
Chairman
Committee on Financial Services
House of Representatives
Subject: Legal Principles Defining the Scope of the Federal Antitrust
Exemption for Insurance
Dear Mr. Chairman:
The enclosed opinion responds to your request concerning the McCarran-Ferguson
Act's exemption from the federal antitrust laws for the insurance industry. In
connection with the Committee's examination of the possibility of comprehensive
insurance regulatory reform, you asked us to address three issues: (1) the evolution
of the exemption and its present-day scope as determined by the courts; (2) the types
of insurance-related activities being conducted today which might violate the federal
antitrust laws in the absence of the exemption; and (3) the types of antitrust laws
currently in effect in the States. As agreed with your staff, this opinion responds to
the first question; we are responding to the remaining questions by separate report.
As summarized below, Part I of the opinion provides an overview of the federal
antitrust laws and the application of those laws to the insurance industry prior to
passage of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 etseq., in 1945. Part II of
the opinion sets forth the Act's provisions relating to the antitrust exemption for
insurance activities, which applies only to those practices that: (a) constitute the
business of insurance; (b) are regulated by State law; and (c) do not constitute an
agreement to boycott, coerce, or intimidate, or [an] act of boycott, coercion, or
intimidation. Part III of the opinion discusses the courts' considerable narrowing of
the exemption over the last 60 years, and includes a detailed review of the key cases
that have addressed whether particular activities are the business of insurance.
Courts consider three factors in determining what constitutes the business of
insurance: (1) whether the activity has the effect of transferring or spreading a
policyholder's risk; (2) whether the activity is an integral part of the policy
relationship between insurer and insured; and (3) whether the activity is limited to
entities within the insurance industry. Today, only those activities directly tied to
ratemaking and other functions at the core of and unique to the insurance industry,
and activities directly related to the relationship between insurer and insured, are
deemed to be the business of insurance potentially immune from the federal antitrust](ViewImageLocal?handle=hein.gao/gaocrptaras0001&div=1&collection=&method=preview&ext=.png&size=3)