NU Online News Service, July 23, 3:28 p.m. EDT

A federal probe into whether state insurance regulators are overstepping their authority when it comes to risk retention groups is being hailed by a national self-insurance group.

The directive came from Rep. Dennis Moore, D-Kan., to the Government Accountability Office, ordering an investigation into allegedly improper state regulatory burdens being imposed on the creation and maintenance of federally sanctioned risk retention groups.

Rep. Moore, chair of the House Oversight Committee on Financial Services, directed the GAO to study instances when non-domiciliary states attempt to improperly regulate the operation of RRGs through such tactics as “cease and desist” orders, onerous filing requirements, imposition of fees, waiting periods, information requests or other means.

“Hopefully, we’ll start identifying specific situations to get people to understand the difficulty RRGs face in this climate,” Kevin Doherty, who chairs the Self-Insurance Institute of America’s Alternative Risk Transfer Committee, told Nu Online News Service.

He said that interference by some state regulators has “made it extremely difficult for [RRGs] to function the way the [Liability Risk Retention Act of 1981] was designed, on a multistate basis.”

He said that when non-domiciliary states “impose requirements that are outside the scope of the LRRA, it puts a damper on these insurance companies–these risk retention groups–which mostly are association-based and many of which are small. So it’s a hindrance to small business.”

He added that the only recourse these RRGs have is to file a federal lawsuit, which can be daunting and expensive.

Mr. Doherty said the RRGs are fine with complying with “reasonable regulations.” The problem, however, is “prohibition against doing what they were authorized to do by their domiciliary state.”

He said the study should serve as the basis for a federal dispute resolution process to prevent further unlawful abuses by states of these self-insured groups.

SIIA said state interference with RRGs includes establishing waiting periods after filing for registration, annual registration and renewal fees, and requiring wide-ranging reports as conditions for the insurance regulator’s approval–all prohibited by federal law, the group added.

Mr. Doherty explained that the issue is that the LRRA never defined a federal enforcement process to defend the law and therefore it has been left up to each individual RRG to defend its interests.

“With enforcement through a dispute resolution process, risk retention groups can be confident of their rights under federal law,” he said in a statement.

RRGs are comprised of members of businesses or professions who self-insure their liability risks and also share ownership in the groups.

Once licensed by their state of origin they may operate in any other state. RRGs have been credited with reducing liability litigation in such areas as medical malpractice, transportation, consumer products and others, the association said.

SIIA said it is hopeful that this independent GAO study will bolster the case for the need of some sort of dispute resolution similar to what was proposed in the current House bill to modernize RRG operations.

That bill–H.R. 4802, “The Risk Retention Modernization Act”–is sponsored by Rep. Moore along with Rep. John Campbell, R-Calif., and Rep. Suzanne Kosmas, D-Fla.

In addition to enforcing the federal exemption first established by LRRA, H.R. 4802 would allow risk retention groups to write commercial property coverage while also standardizing governance rules for the groups.

Along with other industry organizations–including the National Risk Retention Association and the Risk and Insurance Management Society–SIIA said it has worked closely with members of Congress to develop the bill that would modernize the LRRA.