With the McCarran Act Congress opted to preserve the state regulatory system. It rendered federal legislation, other than the federal antitrust laws, inapplicable to the business of insurance unless Congress specifically says otherwise. Furthermore, Congress invited the states to preempt the federal antitrust laws by regulating the business of insurance.

Immediately following the enactment of the McCarran Act, considerable uncertainty existed as to the type and the amount of regulation by the states necessary to oust or preempt the federal antitrust laws under the "regulated by state law" proviso. Ultimately, through the NAIC, a series of model laws was developed. The two primary areas of concern were rating laws for property and liability insurance and unfair trade practice laws applicable to the entire insurance industry. When the model laws covering these areas were adopted by most states, the resultant ousting of the federal antitrust laws for the most part and the general absence of federal legislation specifically relating to the business of insurance left regulation of insurance almost exclusively with the states. And, as we have considered at some length in Chapter 9, the states have evolved a wide-ranging regulatory scheme governing insurer and agent trade practices in the insurance marketplace.

At the same time, however, with the decision in South-Eastern Underwriters Association, the Supreme Court made clear that the federal government possesses the ultimate authority to regulate the interstate aspects of the insurance business. Although Congress decided to initially vest this authority with the states, it clearly reserved a continuing oversight role over state insurance regulation and reserved the right to change state authority in whatever areas, in whatever ways and at whatever time believed appropriate. To what extent Congress will be content to leave insurance supervision with the states, in whole or in part, depends upon the perceived effectiveness of state supervision in areas which raise issues of national concern.

Meanwhile, state regulatory exclusivity did not remain unchallenged as both private parties and federal agencies resorted to the judicial forum. Private parties sought to limit certain aspects of state authority through constitutional challenge. However, the most serious and persistent testing of the parameters of state insurance regulatory authority in the area of trade practices within the framework of the McCarran Act arose from two federal agencies, the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC). The role of the SEC in regulating trade practices is explored at some length in IV below. Here, the focus is on the FTC.