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

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

The directive came from Rep. Dennis Moore, D-Kan., to theGovernment Accountability Office, ordering an investigation intoallegedly improper state regulatory burdens being imposed on thecreation and maintenance of federally sanctioned risk retentiongroups.

Rep. Moore, chair of the House Oversight Committee on FinancialServices, directed the GAO to study instances when non-domiciliarystates attempt to improperly regulate the operation of RRGs throughsuch tactics as "cease and desist" orders, onerous filingrequirements, imposition of fees, waiting periods, informationrequests or other means.

"Hopefully, we'll start identifying specific situations to getpeople to understand the difficulty RRGs face in this climate,"Kevin Doherty, who chairs the Self-Insurance Institute of America'sAlternative Risk Transfer Committee, told Nu Online NewsService.

He said that interference by some state regulators has "made itextremely difficult for [RRGs] to function the way the [LiabilityRisk Retention Act of 1981] was designed, on a multistatebasis."

He said that when non-domiciliary states "impose requirementsthat are outside the scope of the LRRA, it puts a damper on theseinsurance companies–these risk retention groups–which mostly areassociation-based and many of which are small. So it's a hindranceto small business."

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

Mr. Doherty said the RRGs are fine with complying with"reasonable regulations." The problem, however, is "prohibitionagainst doing what they were authorized to do by their domiciliarystate."

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

SIIA said state interference with RRGs includes establishingwaiting periods after filing for registration, annual registrationand renewal fees, and requiring wide-ranging reports as conditionsfor the insurance regulator's approval–all prohibited by federallaw, the group added.

Mr. Doherty explained that the issue is that the LRRA neverdefined a federal enforcement process to defend the law andtherefore it has been left up to each individual RRG to defend itsinterests.

"With enforcement through a dispute resolution process, riskretention groups can be confident of their rights under federallaw," he said in a statement.

RRGs are comprised of members of businesses or professions whoself-insure their liability risks and also share ownership in thegroups.

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

SIIA said it is hopeful that this independent GAO study willbolster the case for the need of some sort of dispute resolutionsimilar to what was proposed in the current House bill to modernizeRRG operations.

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

In addition to enforcing the federal exemption first establishedby LRRA, H.R. 4802 would allow risk retention groups to writecommercial property coverage while also standardizing governancerules for the groups.

Along with other industry organizations–including the NationalRisk Retention Association and the Risk and Insurance ManagementSociety–SIIA said it has worked closely with members of Congress todevelop the bill that would modernize the LRRA.