The Congress passed the McCarran-Ferguson Act in 1945 in the wake of the Supreme Court ruling that the federal government could regulate insurance via the Commerce Clause since insurance is inter state commerce.
Though the McCarran-Ferguson Act did not itself seek to regulate the insurance business yet it empowered the Congress to pass laws regulating the insurance sector. However, federal laws, which are not insurance sector specific, cannot prevail over state laws regulating the business of insurance.
The said Act also provides that federal anti trust laws will not apply to the business of insurance, where there are state laws in place concerning the area. However, the victim or the aggrieved person can invoke the provisions of the federal anti trust laws in cases of coercion, boycott or intimidation.
In effect the McCarran-Ferguson Act allows the state governments to regulate the business of insurance and allows the states to set up mandatory licensing requirements. The said Act also does not affect the state laws of insurance. Nevertheless, recently Congress has expanded the federal government's insurance activities into flood insurance, Federal Crop Insurance and riot and civil commotion insurance.
The Act thus gives limited exemption to the insurance industry from the federal anti trust laws only as long as the insurer’s action pertaining to the business of insurance conform to the state laws and is not designed to intimidate, coerce or boycott.
