Regulating Insurance

Your June 12 editorial, “Giving Insurance More Credibility,” contains some glaring misconceptions about the insurance business and about the federalist system of government in our country. First off, the American Insurance Assn. has nothing to do with medical, life and accident insurance policies. Also, it seems the zenith of hypocrisy for The Times to complain about exemptions from the antitrust laws for insurance activities.

The newspaper industry operates under an exemption from the Sherman Antitrust Act and thereby engages in monopolistic behavior through joint-operating agreements among competitors. Other industries having antitrust immunity include farm and fishing cooperatives, ocean shipping, export associations, small business research and development, certain banking activities and even professional and amateur sports. I assume there are valid public policy grounds for all these exemptions from antitrust laws, just as there are for the limited and conditional exemptions for the insurance business.

The primary reason for the insurance provisions rests in the decision by Congress that the insurance business should be regulated at the state, rather than at the federal level. This permits insurance coverage tailored to each state’s liability and property laws, as well as local consumer protection assistance. Each company is required, by the act you advocate repealing, to justify its rates, policy forms, business plan and financial condition to the states in which it does business. Premiums charged by life insurance companies vary significantly.

Instead of being a monopoly, the insurance industry is one of the most competitive industries in the economy. Far from constituting “cartel-like” conditions, the sharing of actuarial information permitted under the McCarran-Ferguson Act reduces operating costs and permits smaller companies to vigorously compete with larger companies, resulting in reduced costs for buyers.

The alternative to state regulation is a new federal bureaucracy. The suggestion of turning insurance regulation over to the people who brought us the Lincoln Savings situation should give us all pause.

In a conscious decision with respect to the allocation of governmental power, Congress adopted the McCarran-Ferguson Act in order to delegate to the states the authority to regulate the pricing, contract terms and other public protections for the insurance-buying public. By and large, the system has worked well and in the public interest over many years.

Anyone want to call Washington to ask for help with the status of an insurance claim?

DAVID R. CARPENTER

Chairman, President and CEO

Transamerica Occidental Life

Los Angeles