Insurance Against Competition: How the McCarran-Ferguson Act Raises Prices and Profits in the Property-Casualty Insurance Industry

The insurance crisis of the mid-1980s is over, and the insurance cycle has turned, just as it did in 1977 following the crisis of the mid-1970s. Why did insurer profitability bottom out in 1984-85, leading to the dramatic rate increases and the refusals to write insurance that comprised the insurance crisis of 1985-86? In their article, Sources of the Crisis in Liability Insurance: An Economic Analysis, Richard Clarke, Frederick Warren-Boulton, David Smith, and Marilyn Simon ( the authors ) suggest that the expansion of tort law caused the crisis and reject the relevance of the immunity from antitrust prosecution granted to the insurance industry by the McCarran-Ferguson Act. The empirical evidence, however, demonstrates the opposite