The McCarran-Ferguson Act of 1945 significantly impacted the regulation of the insurance industry. What was the primary outcome of this Act?
- AIt established the National Association of Insurance Commissioners (NAIC) as the primary federal regulatory body for insurance.
- BIt granted the federal government exclusive authority to regulate interstate insurance transactions.
- CIt created a federal insurance fund to cover claims from insolvent insurers nationwide.
- DIt declared that states would continue to be the primary regulators of insurance, but allowed federal law to apply where state law does not or is ineffective.
Show answer & explanationAnswer & explanation
Correct answer: D. It declared that states would continue to be the primary regulators of insurance, but allowed federal law to apply where state law does not or is ineffective.
The McCarran-Ferguson Act explicitly stated that the regulation of insurance is primarily the responsibility of the states. However, it also included a provision that federal law would apply to the business of insurance to the extent that such business is not regulated by state law.
Why the other options are wrong
- A. NAIC was established in 1869, long before McCarran-Ferguson.
- B. This is the opposite of the Act's intent, which affirmed state regulation.
- C. Federal guaranty funds were not established by McCarran-Ferguson; state guaranty associations developed later.
McCarran-Ferguson Act (1945)
A federal law that explicitly affirmed that the states are the primary regulators of the insurance industry. It also stated that federal law would apply to insurance only to the extent that state law does not regulate the business of insurance.
- Passed in response to the U.S. v. South-Eastern Underwriters Association Supreme Court case
- Solidified state-level insurance regulation
- Allows federal intervention if states fail to regulate effectively
Memory trick: McCarran-Ferguson: States Rule, Feds May Follow.