Congressional authority underlying legislation impacting the insurance business typically is predicated upon its power to regulate interstate commerce under the Commerce Clause of the United States Constitution. However, the Commerce Clause not only authorizes Congress to act, it limits the power of the states to erect barriers against or unduly burden interstate commerce even in the absence of congressional legislation. As the volume and complexity of commerce and its regulation has grown, the Supreme Court has articulated several tests in attempts to distinguish between those state actions that the Commerce Clause permits and those that are prohibited.

At least three categories of criteria have been set forth. First, the discrimination against the interstate commerce test raises the question of whether the state treats domestic companies more favorably than out-of-state companies. Second, the impermissible risk of the inconsistent regulation test asks whether the subject of regulation is national in nature. Does it admit only one uniform system or plan of regulation? Third, the balancing test weighs legitimate state interests in relation to the degree of burden (excessive or incidental) on interstate commerce. (The case for local interest appears stronger in the insurance area in view of long-standing judicial recognition that insurance is affected with the public interest.) Failure of any one of these tests presumably suffices to find state undue burden on interstate commerce prohibited by the Commerce and Supremacy Clauses.

If there were no McCarran Act protection, the validity of the broad range of state insurance laws and regulations would be open to challenge not only under the preemption doctrine but also as an undue burden on interstate commerce. Although the general sense is that a major portion of state effort would survive such challenge, substantial uncertainty would be ever present.