Union Calendar No. 470

103D CONGRESS

2D SESSION H. R. 9

[Report No. 103–853]

A BILL

To modify the antitrust exemption applicable to the

business of insurance.

OCTOBER 7, 1994

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 470

103D CONGRESS

2D SESSION H. R. 9

[Report No. 103–853]

To modify the antitrust exemption applicable to the business of insurance.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. BROOKS introduced the following bill; which was referred to the

Committee on the Judiciary

JUNE 2, 1994

Additional sponsors: Mr. EDWARDS of California, Miss COLLINS of Michigan,

Mr. KOPETSKI, and Mr. JOHNSTON of Florida

OCTOBER 7, 1994

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on January 5, 1993]

A BILL

To modify the antitrust exemption applicable to the business

of insurance.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘Insurance Competitive

3 Pricing Act of 1994’’.

4 SEC. 2. RULES OF CONSTRUCTION.

5 The amendments made by this Act preserve—

6 (1) the provisions relating to State taxing and

7 regulatory authority in section 2 of the Act of March

8 9, 1945 (59 Stat. 34; 15 U.S.C. 1012), commonly

9 known as the McCarran-Ferguson Act;

10 (2) the availability, to persons engaged in the

11 business of insurance, of the defense of State action in

12 the same manner and to the same extent as such de13 fense is available to other persons;

14 (3) the availability, to persons engaged in the

15 business of insurance, of any antitrust immunity or

16 defense that may be applicable under law other than

17 the McCarran-Ferguson Act;

18 (4) the legal standards applicable under the

19 McCarran-Ferguson Act, as in effect before such Act

20 is amended by this Act, to all conduct described in the

21 safe harbors found in subparagraphs (B), (C), (D),

22 and (E) of section 2(b)(1) of the McCarran-Ferguson

23 Act, as amended by this Act; and

24 (5) the provisions relating to boycott, coercion, or

25 intimidation in section 3(b) of the McCarran-Fer26 guson Act.
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1 SEC. 3. AMENDMENTS.

2 Section 2 of the Act of March 9, 1945 (59 Stat. 34;

3 15 U.S.C. 1012), commonly known as the McCarran-Fer4 guson Act, is amended—

5 (1) in subsection (b) by striking ‘‘: Provided,’’

6 and all that follows through ‘‘law.’’ and inserting the

7 following:

8 ‘‘except as follows:

9 ‘‘(1)(A) The antitrust laws shall be applicable to

10 the business of insurance except as provided in sub11 paragraphs (B), (C), (D), and (E).

12 ‘‘(B) The antitrust laws shall not be applicable

13 to conduct that consists of making an agreement or

14 engaging in joint conduct—

15 ‘‘(i)(I) to collect, compile, classify, or dis16 seminate historical data;

17 ‘‘(II) to develop procedures to collect, com18 pile, classify, or disseminate historical data; or

19 ‘‘(III) to verify that historical data is accu20 rate and complete;

21 ‘‘(ii) to determine, using standard actuarial

22 techniques, or disseminate, a loss development

23 factor or developed losses;

24 ‘‘(iii) to develop or disseminate a standard

25 insurance policy form (including a standard ad26 dendum to an insurance policy form and stand-
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1 ard terminology in an insurance policy form) if

2 such agreement or joint conduct does not include

3 an agreement to adhere to such standard form,

4 or to require adherence to such standard form,

5 except that the fact that 2 or more persons en6 gaged in the business of insurance use such

7 standard form—

8 ‘‘(I) shall not be sufficient in itself to

9 support a finding that an agreement to ad10 here, or to require adherence, to such stand11 ard form exists; and

12 ‘‘(II) may be used only for the purpose

13 of supplementing or explaining direct evi14 dence of the existence of an agreement to ad15 here, or to require adherence, to such stand16 ard form;

17 ‘‘(iv) to develop or disseminate, for use in

18 providing insurance in a State, a manual that

19 is filed, before dissemination, with the State en20 tity that regulates the business of insurance

21 under State law, if such manual includes only—

22 ‘‘(I) information and conduct described

23 in clauses (i), (ii), and (iii), including rel24 ativity factors;
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1 ‘‘(II) during the transition period, a

2 trend factor or information to which a

3 trend factor has been applied, to the extent

4 permitted under subparagraph (C); and

5 ‘‘(III) explanations and instructions

6 for using the manual (or any of the infor7 mation contained in the manual), if such

8 agreement or joint conduct does not include

9 an agreement among competitors to adhere,

10 or to require adherence, to any of such ex11 planations or instructions;

12 ‘‘(v) to provide insurance pursuant to a

13 public necessity market mechanism;

14 ‘‘(vi) to provide insurance as a historical

15 underwriting capacity risk pool;

16 ‘‘(vii) to administer a public necessity mar17 ket mechanism in a State, pursuant to the au18 thorization of and under the supervision of such

19 State, if all persons who provide insurance in

20 such State pursuant to such mechanism, and all

21 persons seeking to obtain insurance through such

22 mechanism, have a reasonable opportunity to

23 appeal determinations affecting them to a gov24 ernmental entity;
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1 ‘‘(viii) to develop or participate in a pro2 gram to inspect commercial buildings and fire

3 protection facilities, and evaluate government

4 building code requirements and enforcement of

5 such requirements, to determine the likelihood

6 and potential extent of loss due to fire, wind,

7 hail, earthquake, flood, or tidal wave, pursuant

8 to a State law that provides procedures for mak9 ing such a determination and provides a reason10 able opportunity for an affected person to appeal

11 such a determination to a governmental entity;

12 or

13 ‘‘(ix) to develop or participate in a pro14 gram, pursuant to a workers’ compensation in15 surance plan filed with the State entity that reg16 ulates the business of insurance under State law,

17 to measure an employer’s experience with respect

18 to occupational accidents and illnesses for which

19 such employer is liable, against the comparable

20 experience of other employers, and to make a

21 modification for an individual employer based

22 on such comparisons, if an affected employer has

23 a reasonable opportunity to appeal a determina24 tion under such program to a governmental en25 tity;
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1 to the extent that such conduct is regulated by State

2 law.

3 ‘‘(C) During the transition period, the antitrust

4 laws shall not be applicable to conduct that consists

5 of making an agreement or engaging in joint conduct

6 to determine or disseminate a trend factor, to the ex7 tent that such conduct is regulated by State law.

8 ‘‘(D) The antitrust laws shall not be applicable

9 to conduct by a director, officer, or employee of a na10 tional trade association representing insurance

11 agents, or of a State trade association representing

12 insurance agents that is affiliated with such national

13 trade association, acting within the scope of the au14 thority vested in such director, officer, or employee by

15 the trade association involved, that consists of prepar16 ing, disseminating, or discussing a report or comment

17 (including describing, evaluating, and suggesting pos18 sible responses for members of the association whose

19 directors, officers, or employees prepared such report

20 or such comment to consider) with respect to any in21 surer practice affecting the relationship between in22 surers and insurance agents, if—

23 ‘‘(i) such report or such comment includes

24 a conspicuous statement that each insurance

25 agent is expected to make his or her own decision
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1 regarding matters contained in such report or

2 such comment and that anticompetitive agree3 ments among insurance agents with respect to

4 any response to such practice are illegal under

5 the antitrust laws;

6 ‘‘(ii) such conduct does not involve—

7 ‘‘(I) monitoring or policing the extent

8 to which any insurance agent follows, or

9 pressuring any insurance agent to follow,

10 any of such responses;

11 ‘‘(II) initiating any communication

12 (including a mailing, association publica13 tion, or association meeting) with any

14 member of any such association with respect

15 to such report or such comment (including

16 any of such responses), other than by a

17 means designed to reach all members, or all

18 directors and officers, of such association;

19 ‘‘(III) referring to any of such re20 sponses in any discussion unless the discus21 sion emphasizes that each insurance agent

22 is expected to make his or her own decision

23 regarding matters contained in such report

24 or such comment and that anticompetitive

25 agreements among insurance agents with
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1 respect to any response to such practice are

2 illegal under the antitrust laws; or

3 ‘‘(IV) the formal endorsement of such

4 report or such comment (including any of

5 such responses) by any part of the member6 ship of any such association, other than a

7 statement that dissemination of such report

8 or such comment has been approved by the

9 directors or officers of the association whose

10 directors, officers, or employees prepared

11 such report or such comment; and

12 ‘‘(iii) the number of directors and officers of

13 any such association who are involved in pre14 paring, disseminating, or discussing such report

15 or such comment (including any of such re16 sponses) does not substantially exceed the number

17 of directors and officers of such association serv18 ing on April 30, 1994;

19 and if the business of insurance is regulated by State

20 law.

21 ‘‘(E) The antitrust laws shall not be applicable

22 to conduct of an insurance agent that is a member of

23 an association referred to in subparagraph (D) that

24 consists of independently initiating a communication,

25 in an issue of a regularly scheduled association publi-
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1 cation or at a regularly scheduled association meet2 ing, to members of a local trade association represent3 ing insurance agents of which such agent is a mem4 ber, that describes or summarizes all or part of the

5 contents of a report or comment described in such

6 subparagraph provided to such agent by such associa7 tion described in such subsection and that is made

8 only by a means designed to reach all such members,

9 if—

10 ‘‘(i) such conduct does not involve—

11 ‘‘(I) monitoring or policing the extent

12 to which any insurance agent follows, or

13 pressuring any insurance agent to follow,

14 any of the possible responses contained in

15 such report or such comment;

16 ‘‘(II) referring to any of such responses

17 unless the reference emphasizes that each in18 surance agent is expected to make his or her

19 own decision regarding matters contained

20 in such report or such comment and that

21 anticompetitive agreements among insur22 ance agents with respect to any response to

23 an insurance practice discussed in such re24 port or such comment are illegal under the

25 antitrust laws; or
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1 ‘‘(III) the formal endorsement of such

2 report or such comment (including any of

3 such responses); and

4 ‘‘(ii) the primary purpose of such meeting,

5 or of such issue of such publication, is not the

6 discussion of such report or such comment (in7 cluding any of such responses);

8 and if the business of insurance is regulated by State

9 law.

10 ‘‘(2) Subsequent to the transition period, the

11 independent purchase of a trend factor by a person

12 engaged in the business of insurance from a person

13 not engaged in providing insurance (and not affili14 ated with a person engaged in providing insurance)

15 shall be presumed not to violate the antitrust laws.

16 ‘‘(3) The Federal Trade Commission Act shall be

17 applicable to the business of insurance to the extent

18 that such business is not regulated by State law, ex19 cept that, with respect to enforcement of the antitrust

20 laws, section 5 of such Act shall be applicable to the

21 business of insurance to the same extent as the other

22 antitrust laws.’’, and

23 (2) by adding at the end the following:

24 ‘‘(c) For purposes of subsection (b)—
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1 ‘‘(1) the term ‘antitrust laws’ has the meaning

2 given it in subsection (a) of the first section of the

3 Clayton Act (15 U.S.C. 12), except that such term in4 cludes section 5 of the Federal Trade Commission Act

5 (15 U.S.C. 45) as such section 5 applies to conduct

6 that constitutes a violation of the Sherman Act or the

7 Clayton Act;

8 ‘‘(2) the term ‘developed losses’ means aggregate

9 paid losses and aggregate reserves held for received

10 claims, as adjusted by a loss development factor;

11 ‘‘(3) the term ‘historical data’ means informa12 tion respecting—

13 ‘‘(A) losses paid by, claims received by, re14 serves for such claims set aside by, or units of ex15 posure to loss in insurance policies sold by any

16 person engaged in the business of insurance; or

17 ‘‘(B) insurance premiums received by any

18 person engaged in the business of insurance, if

19 such information is not disseminated in a form

20 from which information respecting premiums re21 ceived by any separately identifiable person en22 gaged in the business of insurance may be de23 rived;
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1 ‘‘(4) the term ‘historical underwriting capacity

2 risk pool’ means an underwriting capacity risk pool

3 established prior to April 30, 1994—

4 ‘‘(A) the purpose of which is to provide in5 surance for a commercial risk relating to—

6 ‘‘(i) an airport, aviation, or aerospace

7 activity;

8 ‘‘(ii) a large commercial or industrial

9 property (including machinery, boilers, and

10 pressure vessels);

11 ‘‘(iii) a grain elevator or feed mill;

12 ‘‘(iv) an oil, gas, or chemical peril;

13 ‘‘(v) the construction or operation of a

14 nuclear energy facility;

15 ‘‘(vi) an inland marine peril or an

16 ocean marine enterprise;

17 ‘‘(vii) a natural disaster;

18 ‘‘(viii) an occupational accident or ill19 ness;

20 ‘‘(ix) transportation of currency, mail,

21 securities, bullion, or other valuables by a

22 person with fiduciary responsibility for

23 their safe transport;
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1 ‘‘(x) foreign commercial activities un2 dertaken in cooperation with the United

3 States Export-Import Bank; or

4 ‘‘(xi) a war, rebellion, riot, or similar

5 civil commotion;

6 ‘‘(B) whose conduct has not materially

7 changed from the conduct described in accord8 ance with subparagraph (C)(ii) in which such

9 pool—

10 ‘‘(i) was authorized to engage under its

11 charter, bylaws, or other documents of orga12 nization or governance filed in accordance

13 with subparagraph (C)(iii); and

14 ‘‘(ii) did engage as so authorized;

15 prior to April 30, 1994; and

16 ‘‘(C) that, before the effective date of the In17 surance Competitive Pricing Act of 1994, filed

18 with the Attorney General of the United States,

19 in accordance with such rules as the Attorney

20 General may have issued, a notification—

21 ‘‘(i) disclosing the identities of the

22 members of such pool on April 30, 1994;

23 ‘‘(ii) describing the nature and scope of

24 the activities of such pool, and the lines of
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1 insurance in which such pool was engaged,

2 prior to April 30, 1994; and

3 ‘‘(iii) containing the charter, bylaws,

4 and other documents of organization or gov5 ernance of such pool in effect on or before

6 April 30, 1994;

7 ‘‘(5) the term ‘insurance agent’ means a person

8 that is—

9 ‘‘(A) engaged as an independent contractor

10 in the business of selling insurance;

11 ‘‘(B) licensed under the law of a State as an

12 insurance agent or insurance broker; and

13 ‘‘(C) neither an insurer in any State in

14 which such person is so engaged, nor an em15 ployee of an insurer;

16 ‘‘(6) the term ‘insurance policy’ means a con17 tract under which insurance is sold to an insured;

18 ‘‘(7) the term ‘insurer’ means a person that is—

19 ‘‘(A) engaged in the business of providing

20 insurance; and

21 ‘‘(B) obligated to pay losses under the in22 surance policies under which it provides insur23 ance;

24 ‘‘(8) the term ‘loss’ means an amount paid or to

25 be paid by a person engaged in the business of insur-
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1 ance to (or for the benefit of) a claimant to satisfy

2 a claim on an insurance policy, and includes any at3 torney, investigatory, or litigation expenses that are

4 separately incurred, identified, and allocated by such

5 person with respect to that particular claim;

6 ‘‘(9) the term ‘loss development factor’ means an

7 adjustment to be made to the aggregate of losses in8 curred during a prior period of time that have been

9 paid or for which claims have been received and re10 serves are being held, in order to estimate the aggre11 gate of the losses incurred during such period that

12 will ultimately be paid;

13 ‘‘(10) the term ‘loss incurred’ means a loss for

14 which the event has occurred that ultimately gives

15 rise to liability on a claim on an insurance policy,

16 without regard to whether a claim based on such

17 event has been received;

18 ‘‘(11) the term ‘public necessity market mecha19 nism’ means a plan established by State law or by

20 the State entity that regulates the business of insur21 ance under State law—

22 ‘‘(A) for providing a type of insurance in a

23 State;

24 ‘‘(B) in which the persons providing such

25 type of insurance pursuant to such mechanism
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1 represent a substantial number of the persons en2 gaged in the business of providing such type of

3 insurance in such State and are either required

4 by State law, or formally requested or ordered by

5 such State entity, to participate;

6 ‘‘(C) the purpose of which is to make such

7 type of insurance available to persons who would

8 not otherwise be able to obtain such type of in9 surance at affordable cost; and

10 ‘‘(D) in which the rate for such type of in11 surance is subject to the approval or disapproval

12 of such State;

13 ‘‘(12) the term ‘relativity factor’ means a ratio

14 comparing one classification of historical data to an15 other such classification, or comparing developed

16 losses in one such classification to developed losses in

17 another such classification;

18 ‘‘(13) the term ‘transition period’ means the 2-

19 year period beginning on the effective date of the In20 surance Competitive Pricing Act of 1994;

21 ‘‘(14) the term ‘trend factor’ means an adjust22 ment to be made to developed losses in order to ac23 count for any change that is anticipated to affect

24 losses; and
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1 ‘‘(15) the term ‘underwriting capacity risk pool’

2 means a business arrangement or association—

3 ‘‘(A) whose members consist of 2 or more

4 persons engaged in the business of insurance;

5 and

6 ‘‘(B) that operates for the purpose of pro7 viding insurance under which the liability for

8 paying losses is spread among such members.’’.

9 SEC. 4. PUBLICATION AND AVAILABILITY OF HISTORICAL

10 UNDERWRITING CAPACITY RISK POOL NOTI11 FICATIONS.

12 The Attorney General shall, not later than 30 days

13 after receiving a notification filed in accordance with sec14 tion 2(c)(4)(C) of the Act of March 9, 1945 (59 Stat. 34;

15 15 U.S.C. 1012), commonly known as the McCarran-Fer16 guson Act—

17 (1) publish in the Federal Register—

18 (A) a summary of such notification; and

19 (B) notice that such notification is available

20 to the public; and

21 (2) make such notification available to the pub22 lic.

23 SEC. 5. BUSINESS REVIEW.

24 If a person engaged in the business of insurance sub25 mits a written request to the Attorney General in accord-
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1 ance with section 50.6 of title 28 of the Code of Federal

2 Regulations (July 1, 1992), as amended from time to time,

3 for a business review letter with respect to the application

4 of the antitrust laws to specified activities of an underwrit5 ing capacity risk pool (as defined in section 2(c)(15) of the

6 Act of March 9, 1945, commonly known as the McCarran7 Ferguson Act) of which such person is, or intends to become,

8 a member, then the Attorney General shall issue such letter

9 in accordance with such section.

10 SEC. 6. STUDY AND REPORT.

11 (a) STUDY.—During the 5-year period beginning on

12 the effective date of this Act, the Attorney General shall con13 duct a study to determine the effect of this Act, and the

14 amendments made by this Act, on the business of insurance.

15 (b) REPORT.—Not later than 1 year after the expira16 tion of the 5-year period referred to in subsection (a), the

17 Attorney General shall submit, to the Speaker of the House

18 of Representatives and the President pro tempore of the

19 Senate, a report summarizing the results of the study re20 quired by subsection (a).

21 SEC. 7. EFFECTIVE DATES.

22 (a) GENERAL EFFECTIVE DATE.—Except as provided

23 in subsection (b), this Act shall take effect 1 year after the

24 date of the enactment of this Act.
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1 (b) EFFECTIVE DATE OF SECTIONS 4 AND 5.—Sections

2 4 and 5 shall take effect on the date of the enactment of

3 this Act.

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