U.S. Rep. Plans Bill To Let RRGs Offer Property Cover

WASHINGTON--A federal lawmaker said he is drafting a measure to let risk retention groups offer property coverage and to improve corporate governance of such operations.

Rep. Dennis Moore, D-Kan., disclosed his plans to introduce the bill in comments today at the annual meeting of the Self-Insurance Institute of America Inc.

"I believe the time is now, before we experience another hard market for commercial property insurance, to expand the Liability Risk Retention Act to include property coverage," Rep. Moore said.

The 1986 federal law creating risk retention groups currently limits them to providing liability insurance. They are structured as corporations or limited liability associations that function as captive insurance companies for member owners that are licensed as insurance companies or chartered as captives.

Mr. Moore said passage of his legislation will "add much needed capacity to the commercial insurance marketplace by improving competition, which will undoubtedly lead to more affordable and available coverage."

Rep. Moore said at the meeting that the bill will include provisions upgrading corporate governance issues cited by the Government Accountability Office as a concern in a report that otherwise said the law had been effective in adding capacity at reasonable cost in certain lines of liability insurance.

Specifically, the legislation will address ways of reducing conflicts of interest in captive insurance entities and increasing the financial contributions from member-insureds, he said.

Factors contributing to many RRG failures suggest that sometimes management companies have promoted their own interests at the expense of the insureds," the GAO report said.

Mr. Moore said the bill would also address accounting standards, another issue cited by the GAO in its 2005 report. The report was requested by Rep. Mike Oxley, R-Ohio, then chairman of the FSC.

James McIntyre, counsel for the Coalition to Expand Risk Retention Groups, a group based in Washington which represents all trade groups involved with risk retention groups, said it hopes the GAO study can be addressed in the legislation by including a provision that ensures the directors of the RRG are "in control" of the management of the entity.

Mr. McIntyre said he hopes the sponsors of the bill and the coalition "can come together" on language that can be included in a single bill before it is introduced in the House. "The key is ensuring that there are safeguards that provide strong oversight of management by the directors," he explained.

Mr. Moore said he planned to introduce his legislation next month, "and I will encourage the Financial Services Committee to conduct a hearing on this important issue."

An SIIA official said the bill is expected to have strong bipartisan support from representatives of coastal areas. The Republican co-sponsor will be Rep. Deborah Pryce of Ohio, a member of the House Republican leadership and, like Rep. Moore, a member of the House Financial Services Committee.

Rep. Moore said "the ability to operate across state lines--and even nationally--with a single primary regulator has been an important reason for the growth of risk retention groups."