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Insurers Are Giving A Little To Avoid Giving A Lot

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Kicking and screaming they may be, but the major insurance companies are offering to give up a corner of their security blanket. For 46 years, insurers have enjoyed the special antitrust protection of the McCarran-Ferguson Act. Among other things, the act allows them to pool underwriting data and set prices jointly. This way, insurers have argued, they can set their rates accurately enough to prevent frequent insolvencies. Well aware of the act's benefits, insurers always have stood united to block any legislative attempts to change McCarran-Ferguson.

Now it looks as if big insurers are breaking ranks. On May 17, the American Insurance Assn., a lobby representing mostly large property and casualty companies, announced a proposal to curtail some of McCarran-Ferguson's antitrust exemptions. On May 30, the American Council of Life Insurance expects to take similar action. If the proposals take root, the industry may see a vast consolidation as many small companies fold under fresh competition. Predicts Michael Frinquelli, Salomon Brothers Inc.'s chief insurance analyst: "Strong regional companies could be gobbled up by bigger companies."

'DISCOMFORT.' Insurers obviously wouldn't give ground if they didn't have to. But the industry has withered under public criticism of high rates, canceled policies, and outright failures such as that of First Executive Corp. and, more recently, First Capital Holdings Corp. (page 116). Representative Jack Brooks (D-Tex.) is taking the lead on Capitol Hill with his bill to abolish most of the antitrust exemptions. Last year, the bill was approved by the Judiciary Committee but failed to reach a floor vote, in part because of industry lobbying. Insurers now are taking a different tack. As AIA President Robert E. Vagley explains the strategy: "Putting up barricades now would just be unproductive."

Insurers argue that Brooks's bill will undermine the industry. For instance, underwriters say that to stay in business they must be able to spread risk among their peers. Otherwise, one big claim could wipe out a company's capital. So the AIA proposes to eliminate the antitrust exemptions, except for what they consider certain essential business practices. These "safe harbors" would include sharing actuarial and building-inspection data, developing standardized forms, and spreading risk by joint underwriting and pooling arrangements.

UNDER SCRUTINY. But smaller underwriters are vehemently opposed to any amendment of McCarran-Ferguson. Warns Lowell R. Beck, president of the National Association of Independent Insurers: "You can't have a little bit of federal involvement without ultimately having a lot." Insurers' biggest fear is what may happen to their time-honored regulation by the states. Removal of antitrust exemptions would put insurers under the scrutiny of federal antitrust overseers. Says Robert A. Brian, senior vice-president of insurance-research firm Conning & Co.: "We're seeing the beginning of a new era in combined federal and state regulation."

Changes in antitrust exemption are especially unnerving to those whose survival depends on sharing actuarial data. They typically don't do enough volume to gather the data sufficient to price policies profitably. Thus, some insurers and analysts contend, repealing McCarran-Ferguson could raise prices at small companies because their costs would increase and they would no longer be able to set rates confidently. "Some companies will fail," says Orin S. Kramer, a New York-based insurance consultant. A horror? Maybe not. A. M. Best Co. figures that some 3,000 property and casualty insurers now split up just 27% of the market.

The Brooks bill is due before the Judiciary Committee sometime this summer. Passage is far from guaranteed, yet a congressional aide says the AIA's retreat will boost the bill. Even if some "safe harbors" survive, now begins the unraveling of the security blanket insurers have enjoyed for nearly half a century.Lisa Driscoll in New Haven

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