If you discovered your neighborhood butcher was trying to fix the price of meat with other butchers, carve up the market and tell you you couldn't buy fancy cuts unless you bought soup bones, you'd call the authorities. But because of an antiquated law, the insurance industry has been given the privilege of rigging the market comparably.
This special treatment stems from the McCarran-Ferguson Act of 1945, which allows the insurance industry, unlike any other American industry, to escape the scrutiny of Federal antitrust laws. This law is an Edsel.Consumers pay a steep price for this special privilege, for, after food and shelter, insurance is the single largest annual consumer investment.
The exemption, which for 45 years has never been based on any sound public-policy principle, has created a marketplace hostile to consumers. When consumers pay more for car insurance than their cars are worth, something is very wrong with the marketplace. When nurse-midwives, day-care centers, municipalities and others suddenly found in the '80s that they could not get insurance at any price, supposedly because of a lawsuit crisis, something is very wrong.
Shopping around for a better price was a fruitless exercise for these interests. Often, they couldn't find any insurer willing to cover them. A healthy, competitive insurance market would not have produced such horror stories.
Over the years, many in Congress have tried to repeal the McCarran-Ferguson Act. Yet the insurance industry has always been able to throw its considerable weight around and prevent such efforts from taking hold. So politically powerful is the industry that in 1980 it succeeded in convincing Congress to bar the Federal Trade Commission from even studying the insurance business.
But consumers are blowing the whistle. When the issue of whether the industry should be allowed to fix prices was put to Texas voters in a March referendum, 90.6 percent said no. Californians rescinded the state antitrust exemption for the insurance industry when Proposition 103 was adopted in 1988. Last March, New Jersey subjected the auto insurance market to state antitrust scrutiny.
Congress is beginning to take heed. There is significant activity in the House Judiciary Committee on a bill sponsored by Rep. Jack Brooks, D-Texas. It would hold the industry accountable for antitrust violations like price fixing, dividing markets, linking the sale of one product to another and monopolizing the market.
The industry is hanging on to its exemption with the fierceness that auto makers once displayed in resisting airbags, but today in ads even Lee Iacocca extols the virtues of airbags. If Congress stands up to the insurance industry and passes the Brooks bill, consumers will be the beneficiaries.