NRRA Asks NAIC To Revise RRG Reg. Handbook

NU Online News Service, Aug. 17, 2:50 p.m. EDT

The National Risk Retention Association is asking state insurance commissioners to revise the accreditation standards states use to regulate risk retention groups, to reflect the fact that they are primarily regulated through a federal law, limiting each state's ability to impose separate rules and laws.

Many of the problems stem from registration fees charged by nondomiciliary states to RRGs doing business there. Some fees are annual and others are quarterly, according to NRRA.

NRRA also said that some states charge fees for myriad services that, according to NRRA's interpretation of the applicable federal law, RRGs don't have to comply with.

In a letter to Scott Richardson, South Carolina insurance commissioner and chairman of the NAIC Risk Retention Group Task Force, NRRA's attorney said the current accreditation standards used by states in evaluating RRGs violate the federal law that primarily governs them and therefore "frustrate the intent of Congress."

The letter was signed by Robert H. Myers Jr., NRRA general counsel.

Specifically, the letter says, a "majority of states violate the Risk Retention Act of 1986 by charging an initial registration fee for risk retention groups seeking to do business there; and several states require an "approval" process for RRGs spanning a few months to several years.

Moreover, the letter said, more than a dozen states require an annual "renewal" fee ranging from $100 to $1,000, often in addition to an annual statement or "maintenance" filing fee that can run from $50 to $300. In addition, several states require medical malpractice RRGs to file claims reports either quarterly or annually, while other states require RRGs to pay fees, such as fraud program fees, desk audit fees and renewal certificate of authority fees.

These fees are being charged, even though two NAIC working groups have spent several years, first studying the regulation of RRGs in the light of the federal law that governs their operation, and then developing model rules and accreditation standards to improve their oversight, Mr. Myers said in his letter.

"While the efforts of both the working group and the task force will have the effect of enhancing the consistency of RRG regulation by the states, there has been no effort to include within the accreditation standards any requirement that the states conform to the act," Mr. Myers said in his letter.

He said the task force and working group revised the handbook following a 2005 General Accountability Report on RRGs, based on an analysis of the 1986 federal Liability Risk Retention Act that governs their operation.

Mr. Myers said the 1986 law only requires an RRG doing business in a nondomiciliary state to file one report, containing data mandated by a specific provision of the law.

"The LRRA expressly preempts any other nondomiciliary state regulation unless it falls within one of the specified exceptions to preemption.

"The exceptions to preemption relate primarily to unfair trade practices, premium taxes, registration of an agent, injunctions from a court of competent jurisdiction, and a notice on policies informing policyholders that the RRG may not be subject to all of the insurance laws of the state and is not a member of the state guaranty fund," the letter said.

Mr. Myers noted to National Underwriter, "We hope that the issues will be considered at the NAIC meeting in September. As you can tell by reading our letter, substantial thought went into preparing our position. I think our next steps will depend upon the response of the NAIC," which he said will need time to consider the issues presented.