Twenty years ago, President Ronald Reagan signed into law the 1986 amendments to the Liability Risk Retention Act, to provide a "marketplace solution" to disruptions in the availability and affordability of commercial liability insurance.
By all counts, the LRRA is a success, providing a viable alternative to the traditional insurance market. The more than 200 RRGs operating today are in it for the long term.
They're happy to have the stability provided by RRGs, the ability to implement effective risk management programs, and the potential for reaping financial rewards from good loss experience. Premium generated by RRGs in 2005 neared the $2.5 billion mark.
At the heart of the LRRA is a single-state regulatory scheme, under which an RRG becomes licensed in one state–which retains primary regulatory authority of the entity. Once licensed, the RRG can operate nationally, with regulation of non-domiciliary states largely preempted.
Because of the act's emphasis on single-state regulation, it is imperative that regulators rely on each other's attentiveness. Yet, from the inception of the legislation, regulators have been concerned over "weak link" states. In its report to Congress, in fact, the Government Accountability Office referred to this as "the race to the bottom."
RRGs have been in the spotlight following publication of the GAO report last year. Two National Association of Insurance Commissioner committees–the RRG Task Force and the RRG Working Group–have been engaged in intensive discussions to develop uniform regulatory standards that states regulating RRGs will be required to adopt in order to secure their accreditation.
Moreover, calls to amend the LRRA have grown stronger, seeking expansion beyond liability to all commercial lines, including property and excess workers' compensation. Indications are Congress may address LRRA amendments in its next session.
While the current Congress appears intent on insurance reform–note optional federal charter legislation in the Senate and backing by House committees of the Nonadmitted and Reinsurance Reform Act–no one knows which party will control Congress after the November election.
The coming year poses uncertainties for RRGs, in light of the GAO report recommendations, NAIC discussions that may impose increased regulation on RRGs and Congressional composition.
Notwithstanding these uncertainties, the annual "Risk Retention Reporter Survey of RRG Premium and Number of Insureds," to be published in the October 2006 issue, projects continued industry growth.
Whether the LRRA is amended or stays as enacted, RRGs, which came to the rescue in the crisis of the mid-1980s, will continue to provide a needed alternative for U.S. business insureds, as they have for the last 20 years.
Karen Cutts is editor and publisher of the "Risk Retention Reporter" in Pasadena, Calif. For information on risk retention groups and purchasing groups, visit www.rrr.com.
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