The Business of Insurance
For many years, the debate about insurance reform relative to automotive collision repair centered on the repeal of the McCarran-Ferguson Act, which permits states to regulate the business of insurance and exempts the insurance business from federal antitrust laws since state-level regulation exists. The McCarran-Ferguson Act has provided the basic shield for insurance companies since the law became effective July 1, 1948.
What prompted Congress to address this particular insurance issue in the 1948 case? It was a response to fears from the insurance industry of potential lawsuits and liability resulting from the decision in the case of United States vs. South-Eastern Underwriters Association, 322 U.S. 533 in 1944. The Supreme Court decision in this case recognized the business of insurance as part of the modern business world - that it constituted interstate commerce and was subject to federal antitrust laws.
In recent years, the courts have held a restrictive view of McCarran's antitrust exemption. In Group Life and Health Insurance Company vs. Royal Drug Company, 440 U.S. 205 (1979), the Supreme Court reviewed the McCarran-Ferguson Act's antitrust exemption and restricted its limits with a logical test. This test excludes from exemption any practice or conduct that does not involve underwriting or spreading of risks or involve the relationship of the insurer or the insured. The Union Labor Life Insurance Company vs. Pireno, 102 Sup. Ct. 3002, (1982) case reaffirmed the restrictions of the Royal Drug case. Out of this case came three criteria for recognizing the business of insurance:
- Whether the practice has the effect of transferring or spreading a policyholder's risk;
- Whether the practice is an integral part of the policy relationship between insurer and the insured; and
- Whether the practice is limited to entities within the insurance industry.
None of these criteria are necessarily determinative on their own. McCarran has never assumed that the insurance exemption from federal antitrust laws would cover boycotts, coercion or intimidation on the part of insurance companies.
Throughout the years, auto body repairers have sought to have the antitrust exemption law repealed. Although champions in Congress have regularly introduced legislation to repeal or reform McCarran-Ferguson, insufficient support has been found in both the U.S. House of Representatives and the U.S. Senate.
After President Clinton was elected, health care became the top issue for the administration. This provided the Automotive Service Association (ASA), consumer groups and pharmaceutical associations with an opportunity to make managed care reforms. This coalition supported an effort by former House Judiciary Committee Chairman Jack Brooks to make major reforms in McCarran-Ferguson. The reform initiative was attached to the Clinton Health Care bill, but it was never to see the president's signature as it did not make it through Congress.
Many questioned whether repeal or radical reform of McCarran-Ferguson would produce the kind of long-term positive change needed in the insurance industry. Leading congressional advocates for insurance reform retired or were defeated in the 1994 election cycle. At that point, ASA changed its strategy. If the business of insurance does not have a clear chance of regulation in the near future at the federal level, industry advocacy efforts have to move to the states.
Although state insurance regulators and state legislative committee chairpersons still tend to come out of the insurance industry or move quickly into the industry after leaving their policy positions, according to consumer group analyses, there is progress being made. Some state insurance regulators are also taking a harder look at consumer service, rates and quality of repairs.
In this decade, the industry has seen more activity on replacement crash parts, anti-steering legislation, discussions about paint material calculations, and other key issues than in years past at the state level. This trend will likely continue. The current leaders of the U.S. Department of Justice's Antitrust Division have made clear their support of our efforts but have equally stressed that the probability of acquiring enough congressional support for significant reform would be slight. They emphasized more of a state-by-state strategy as well as using the quality-of-repair argument with insurers and consumers.
As automotive repairers stare at this next round of state legislative sessions across the country, the history relating to McCarran is key to our future. Although many have believed that reform or repeal of McCarran at the federal level would solve all of the problems relative to the insurer-repairer-consumer relationship, one would have to think quite narrowly to consider this in itself sufficient to resolve the repairer-consumer dilemma.
Consider that we might have been given a "second chance" by guiding our industry reforms to the states. Specifically, our very untried grassroots capacity now has an opportunity for serious reform in specific areas of concern. With the repair industry clearly divided on issues of direct repair programs, we have an opening for targeted reform that allows a continued relationship with the principle entity funding our collision repairs - the insurer.
As the business of insurance is regulated in the states, repairers have to become more focused on historically insurer-friendly policymakers.
Several states have taken this issue seriously and begun substantive meetings with insurance commissioners, as in Maryland and Pennsylvania for example.
As media attention and consumer activism become focused on higher insurance rates, consumer awareness as to choice and quality have to be initiated by repairers in order for policy decisions to be made with complete information. Without this, consumers will continue to address the price of premiums without the least amount of concern for quality and freedom of choice in the collision repair process. Lawyers at the U.S. Justice Department agree that our strongest advocacy tool is consumer education. This will move the policymakers closer to a more equitable position for repair shops.
As we enter the 1998 state legislative season, our agenda must be broad and deep. ASA's long-term strategy plan calls for new affiliations with groups that might only agree with us on a single issue, but coalitions are key to our long-term success in leveling the insurer-repairer-consumer playing field.
With this, managed care has not gone unnoticed in the 105th Congress or by the presidential administration. U.S. House Commerce Committee member Congressman Charlie Norwood of Georgia has introduced the Patient Access to Responsible Health Care Act. Although this only addresses health insurance issues, many parts of the bill parallel with the problems automotive repairers face. The Clinton administration has responded with its own managed care initiative. This could be the door for more public focus on the issues we face.
Finally, as slow as the process seems to be, repairers are much more focused in their reform advocacy efforts than in the past 40 to 50 years. ASA's continued efforts to narrow our issues and define what reforms best enhance our industry are crucial to future successes. Whether this involves paint, replacement crash parts or parameters for steering, state laws and regulations have to be analyzed and prioritized for reform. Only then can our limited resources be used in a fashion to advance our industry. Blanket pleas for help and whining are not the answers for progress. Careful analysis and unity will move this industry forward.
The Business of Insurance || A/C Contamination and Blends || Air Bags: On or Off? || Associations Advance America || A Tribute to G.W. "Bud" Merwin III || Guest Editorial: "Association" is key to growth. || Tech to Tech || Tech Tips || News Briefs || Taking the Hill || Around ASA || Shop Profile || Net Worth || Stat Corner || Chairman's Message
AutoInc. Magazine ®, Vol. XLVI, March 1998