On Insurance Antimonopoly Exemption

When making its own Antimonopoly Law, China has encountered a problem: whether it needs to provide for an exemption to the insurance industry. Some argue that, the insurance business is a business that spreads risks, which makes it special: competitors on this market have to rely on concerted actions to avoid cut-throat price war and therefore maintaining an orderly competition, and these actions will be deemed illegal without such exemption. They also argue that, the United States also has a stand-alone statute, namely the McCarran Ferguson Act, that grand its insurance industry antitrust exemption, and China should follow the same suit. While the U.S. does have such an exemption existed, the whole body of McCarran Ferguson exemption law is very complicated because it involves constitutional issues when the bill was under debate in the federal Congress; moreover, the U.S. Supreme Court has constantly laid down many important restrictions when applying this exemption. If one considers all these ramifications, he or she will have to agree that this exemption is indeed a limited one, and it keeps becoming narrower. Understanding the reality better will no doubt help China make a wise decision with respect to its Antimonopoly Law.This dissertation first presents an overall picture of how the McCarran Ferguson exemption works in the American insurance industry. It describes how the regulatory power is divided between the federal and the states, and how the states oversee this business within their jurisdictions. It then goes on to describe what kind of exemption that the insurance industry has enjoyed, what is the legal rationales behind, and what problems that this treatment has produced. Chapter two elaborates the historical background of the making of McCarran Ferguson Act. It begins with an introduction of the state insurance regulation before 1945, telling the readers how the states established their exclusive regulatory power to protect their vested interests in the insurance business, with an analysis of how the early attempt to challenge the state power failed. It then looks into how the Roosevelt New Deal makes inroads into the state regime, with the blessing of the 1937 Supreme Court Constitutional Revolution, and how the antitrust law enforcement won the SEUA battle, followed by an account of how the states and the insurance industry works together to fight back and successfully pushed the passage of the McCarran Ferguson Act. This Chapter also explains what does the"limited exemption"means.Chapter three focus on how the American insurance industry fixes price under the McCarran Ferguson exemption. Contents in this chapter includes a brief introduction of the history of premium price cartelization, the evolution of state regulation on this kind of naked price-fixing conducts, a summary of varied economic analysis of such cartelization, and a description of how the ISO gave up the practice of publishing advisory rates. This chapter also speculates that, in the end, the state rate regulation may well return to the track of normal antitrust regulation considering the abandonment of advisory rate.Chapter four covers the exception to the McCarran Ferguson exemption– boycott. It traces the linguistic origin of the term of boycott and how it was regulated by the U.S. Supreme Court. It also analyzes how the insurance boycott cases develop the boycott law, especially the highly publicized Hartford Fire Ins. Co. v. California case.Finally, in Chapter five, the author has an in-depth discussion on whether China should establish a similar insurance exemption in its Antimonopoly Law. Taking into account of the Chinese reality and special market structure, the author argues that neither the fear of price war nor the industry policy could justify such an exemption, and that it ought to be the competition authority instead of insurance regulator who should be in charge of the antimonopoly responsibility.