The McCarran-Ferguson Act of 1945: Reconceiving the Federal Role in Insurance Regulation

Abstract

Among America's financial institutions, insurance firms alone are largely immune from federal regulation. The liability insurance crisis of recent years and the well publicized failures of several major insurance companies have sparked calls for federal regulation of the insurance industry. In this Article, Professors Macey and Miller examine the exemptions from federal regulation provided in the McCarran-Ferguson Act The authors first examine the statutory allocation of regulatory power among the state and federal governments and posit a model of regulatory federalism describing the existing system. The authors then apply this model to assess three issues. Considering first the insurance industry's broad exemption from antitrust regulation, the authors argue that the exemption should be interpreted to allow the sharing of historical loss cost data, but not of data on profitability or other costs. Turning next to the issue of solvency regulation, the authors conclude that federal solvency regulation would be unwise, but suggest that the Federal Reserve Board assume a role as lender of last resort. Finally, the authors argue that insurance rates should be set by market forces, not regulatory agencies, rejecting calls for increased federal involvement in rate regulation.