4. Dealing with "Reverse Competition" in a Dual Regulatory System We have examined in some detail the problems of "reverse competition" in title insurance and, to a lesser extent, in credit life and health insurance and life insurance generally. The problem essentially is that consumers are either "captive" buyers, uninformed buyers, or simply buyers indifferent to price variations among sellers. Consequently, insurers compete for the producers' business rather than directly for the business of the ultimate consumer, resulting in excessive commissions and prices. 633/ In credit In title insurance, the consumer is captive because the service is ancillary to the principal transaction, which is the purchase of real estate. health and life insurance, reverse competition stems from the inferior bargaining position of the buyer who, again, may view the insurance service as ancillary to the principal transaction, which is the purchase of credit. 634/ In life insurance, the dependence of the insurer on the agent to initiate buyer interest in the service and the lack of consumer knowledge may contribute to excessive commissions. At least this appears to be the rationale for Section 213 of the New York Insurance Law. 635/ However, the problem may not exist for all life insurers, where for example direct writers have control over the level of commission rates and compete on the basis of price. Likewise, the problem may not be universal for all title insurers or all credit life and health insurer companies. Consequently, we believe that further study of the reverse competition problem is required, particularly in life insurance. There may be several alternatives to dealing with the problem of reverse competition in such a manner as to be consistent with the objectives of a dual regulatory system in which the federal alternative is fundamentally a competitive one. We believe the best approach would be to permit companies engaged in such problem lines to qualify for federal chartering but remain subject to selective forms of state regulation designed to set limits on compensation to intermediaries and thus counter the reverse competition phenomenon. 635 See discussion on pages Report. 280-281 of this In summary, a predominant segment of the propertyliability insurance industry is favorably structured for competition, with a large number of competitors, relatively moderate concentration, ease of entry, a standardized service, a relatively simple and short-term contract, and an increasingly price-sensitive consumer market. The available evidence suggests that unrestricted price competition would be an effective alternative to state rate regulation and compatible with regulatory objectives for a reliable insurance mechanism. It is the opinion of this study that all of the major lines of property-liability insurance should have the option of operating in a fully competitive environment under a dual system of regulation. Other lines, including life insurance, are probable candidates, subject only to possible regulation countering the phenomenon of reverse competition. Further study appears necessary to reach definitive conclusions in health insurance and medical malpractice. As one industry-sponsored study recently concluded, "this may be the time for the insurance industry to surrender the cloak and face the antitrust elements ungarbed because only then can it be treated equally with other segments of interstate commerce." 636/ 636 The College of Insurance Research Institute, "Insurance Regulation at the Crossroads" (1976), at 56. Bec MCCARRAN-FERGUSON ACT OF 1945 Chapter 20-REGULATION OF INSURANCE Section 6 of act Mar. 9, 1945, provided: "If any provision of this Act (this chapter], as the application of such provision to any person or circumstances, shall be held invalid, the remainder of the Act, and the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected." $1012. Regulation by State law; Federal law relating specifically to insurance; applicability of certain Federal laws after June 30, 1948. (a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business. (b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of Insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914. as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be appiicable to the business of insurance to the extent that such business is not regulated by State law. Mar. 9, 1945, ch. 20, 2, 59 Stat. 34; July 25, 1947, ch. 326, 61 Stat. 448.) REFERENCES IN TEXT The act of July 2, 1600, as amended, known as the Sherman Act. referred to in subsec. (b), is classifed to sections 1 to 7 of this title. The act of October 15, 1914, as amended, known as the Clayton Act, referred to iu subsec. (D), is classified principally to section 12 et seq. of this title. The set of September 26. 1914, known as the Federal Trade Commission Act, as amended, referred to in subsec. (b), is classified to section 41 et seq. of this title. AMENDMENTS 1947-Act July 25, 1947, substituted "June 30, 1948′′ for "Jas. 1, 1948". 1013 Suspension until June 30, 1918, of application of certain Federal laws; Sherman Anti-Trast Act applicable to agreements to, or acts of, boycott, coercion, or intimidation. (a) Until June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act Attachment A of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, and the Act of June 19, 1936, known as the Robinson-Patman Anti-Discrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof. (b) Nothing contained in this chapter shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation. (Mar. 9, 1945, ch. 20, § 3, 59 Stat. 34; July 25, 1947, ch. 326, 61 Stat. 448.) REFERENCES IN TEXT The act of July 2, 1890, as amended, known as the Sherman Act, referred to in subrecs. (a) and (b), is classifed to sections 1 to 7 of this title, The act of October 15. 1914, as amended, known as the Clayton Act, referred to in subrec. (a), is classified principally to section 12 et seq. of this title. The act of September 26, 1914, known as the Federal Trade Commission Act, as amended, referred to in subsec. (a). is classifed to section 41 et seq of this title. The act of June 19, 1936, known as the Robinson-Patman Anti-Discrimination Act, referred to in subsec. (a), is classifed to sections 13 to 13b and 21a of this title. AMENDMENTS 1947-Act July 25, 1947, substituted "Jure 30, 1948" for "January 1, 1948". 1014. Applicability of National Labor Relations Act and the Fair Labor Standards Act of 1938. Nothing contained in this chapter shall be construed to affect in any manner the application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act, or the Act of June 25, 1938, as amended, known as the Fair Labor Standards Act of 1938, or the Act of June 5, 1920, known as the Merchant Marine Act, 1920. (Mar. 9, 1945, ch. 20, § 4, 59 Stat. 34.) REFERENCES IN TEXT The National Labor Relations Act. referred to in the text, is classified to section 151 et seq of Title 29, Labor. The Fair Labor Standards Act, referred to in the text, is classified to chapter 8 of Title 29, Labor. The act of June 5, 1920, known as the Merchant Marine Act, 1920, referred to in the text, refer to act June 5. 1920, ch. 250. 41 Stat. 988. For distribution of that act in this Code, see note set out under section 861 of Title 46, Shipping, 1015. Definition of "State." As used in this chapter, the term "State" includes the several States. Alaska, Hawaii, Puerto Rico, Guam, and the District of Columbia. (Mar. 9, 1945, ch. 20, 5, 59 Stat 34: Aug. 1, 1956, ch. 852, 4, 70 Stat 908.) AMENDMENTS 1956-Act Aug. 1, 1956, included "Guam" in the dennition of state. ADMISSION OF ALASKA AND HAWAII TO STATEHOOD Alaska was admitted into the Union on Jan. 3, 1959. upon the issuance of Proc. No 3289. Jan. 3, 1959, 24 FR. 81, 73 Stat. c16. and Hawall was admitted into the Union on Aug. 21. 1950. upon the issuance of Proc. No. 3309 Aug. 21. 1959, 24 FR. 6868. 73 Stat. c74. For Alaska Statehood Law. ree Pub. 2 85.508, July 7. 1958, 72 Stat. 339. set out as a note preceding section 21 of Title 48. Territories and Insular Possessions. For Hawaff Statehood Law Bee Pub. L. 86-3. Mar. 18. 1950, 73 Stat. 4. get out as a note preceding section 491 of Title 48. |