Insurance Commissioners (NAIC) focused on the fire insurance rate reform. Merritt
Committee was formed and provided persuasive rationale for an exception to the
concept of anti-trust. The two opposite voices coexisted until the other important
U.S. Supreme Court case “U.S. v. South-Eastern Underwriters Association (SEUA)”
was closed in 1944. The Supreme Court decided that the Sherman Antitrust Act
applied to insurance industry and bureau rate-making was not allowed.
However, State Governments did not like the idea since it impacted their revenue
and taxation. They acted on it quickly and got the McCarran-Ferguson Act passed
in 1945, which affirmed the state insurance regulation and taxation and exempted the
business of insurance from federal antitrust laws with a few exceptions. The battle
was continued for another fifteen years after McCarran-Ferguson, marked by judicial
and regulatory activity to inhibit the use of bureau rates. For example, O’Mahoney
Committee, formed in 1958, affirmed that competition should be the prime regulator
of insurance.
The end of bureau rates happened in 1970’s. Bureau rates became “advisory
rates”, served as a point of reference to insurers. The biggest bureau, Insurance
Services Office (ISO) got challenged. In 1988, 20 states’ attorneys general filed suit
against ISO relating to policy language for Commercial General Liability. Finally in
1997, ISO became a “for profit” corporation. Insurance industry no longer controls
ISO. To some extent, the new ISO was a symbol that the long transformation of
insurance rating bureaus has reached a new level and probably will be stable for a