General question
What is the difference between cooperative ratemaking and price fixing?
I'm trying to understand why McCarran Ferguson allows the first but not the second.
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What is the difference between cooperative ratemaking and price fixing?
I'm trying to understand why McCarran Ferguson allows the first but not the second.
Comments
I also read in the 2017.Fall.4 part d examiners' report that "Info sharing between competitors unique to insurance industry"- is that cooperative ratemaking or different?
Is the info sharing today in the form of rate filings, SAO , schedule P / Annual statement submissions that are public? (I got these right that these are all public right?)
The difference between cooperative ratemaking and price-fixing is semantics. The term "cooperative" has good connotations whereas "price-fixing" is seen as bad.
Cooperative means sharing information for the benefit of policyholders and the general public. The better information an insurer has (especially for small insurers that might lack credible data) the more "accurate" the pricing will be and this benefits policyholders. This is the purpose of ISO (Insurance Services Office) and not so much from other public information like rate filings and annual statements. Here's brief synopsis of ISO:
Price-fixing typically refers to industry behavior that benefits the industry at the expense of the public interest. For example, all insurers could agree to set the same high prices to avoid competition. Every company would increase their profit percentage but policyholders would not have a real option to switch insurers because the prices would all be the same. When companies do this, it's essentially the same thing as creating a monopoly.
Thank you.
So it sounds like the SEUA case outlawed cooperative ratemaking, but the McCarran Ferguson Act allowed it once more and it is still allowed in the form of rate bureaus, the ISO, and insurance compacts as long as they don't participate in other antitrust actions such as boycotting, intimidation, or coercion. Full on price fixing is not allowed.
Is this understanding correct?
Correct.
Related to this question, are insurer compacts legal? The Porter.2-Devlpt page says they are tolerated but the Examiner's Report for 2017.s.4 says they are illegal still. Are they illegal but not prosecuted? Thanks!
We believe the examiner's statement that insurer compacts are illegal is in error. Reading the source carefully, you'll see that the SEUA decision made illegal insurer compacts that engaged in anti-competitive practices, and not necessarily all insurer compacts.
We made the necessary adjustment in the wiki note.
https://battleacts6us.ca/wiki6us/Porter.2-Devlpt#:~:text=Note%20that%20the%20decision%20in%20U.S.%20v%20SEUA%20gave%20regulatory%20authority%20of%20insurance%20to%20the%20federal%20government%20and%20made%20insurer%20compacts%20that%20engage%20in%20anti%2Dcompetitive%20practices%20illegal.