By Ronen Perry
The recent economic crisis showcased some of the main deficiencies of existing regulatory systems and rekindled the debate over the importance and scope of regulation in general and of financial services regulation in particular. Against this backdrop, insurance-one of the main pillars of the financial services sector-merits special attention because it remains the only financial industry in the United States that is not regulated on the federal level. In the landmark case of United States v. South-Eastern Underwriters Ass’n, the Supreme Court held that “[n]o commercial enterprise . . . which conducts its activities across state lines has been held to be wholly beyond the regulatory power of Congress under the Commerce Clause,” and that the insurance business was no exception. This opened the door to federal regulation of the insurance industry. Insurance companies were concerned by the prospect of rigorous federal regulation, and intensive lobbying began. The following year, Congress enacted the McCarran-Ferguson Act, whereby “the continued regulation . .. by the several States of the business of insurance is in the public interest, and . . . silence on the part of the Congress shall not be construed to impose any barrier to the regulation . . . of such business by the several States.” Although many have encouraged Congress to repeal this Act, they have been unsuccessful so far.
Ronen Perry, Insurance Regulation: Lessons from a Small Economy, 63 SMU L. Rev. 189 (2010)