Risk Retention Groups Seek Quick Action On Property Coverage Bill

The bill is the "Risk Retention Modernization Act of 2010," H.R. 4802. Besides providing authority to sell property insurance, it would mandate that RRGs create new uniform and baseline corporate governance standards.

The bill would also give the Treasury Department broad new powers to oversee the industry, including the authority to mediate interstate disputes about RRG authority.

Under the legislation, the Department of Treasury would have the authority to review disputes between risk retention groups and non-domiciliary state regulators and offer interpretations regarding the Risk Retention Act.

The Treasury could also publish minimum corporate governance standards for RRGs and rules for compliance, business conduct and ethics standards.

The bill was sponsored by Rep. Dennis Moore, D-Kans., and Rep. John Campbell, R-Calif.

It is similar to legislation introduced in the 2008 in the House. Its supporters include the Self-Insurance Institute of America; the National Risk Retention Association; and the Risk and Insurance Management Society.

Under the measure, RRGs would also be required to prepare financial statements that conform to statutory accounting principles and enhanced disclosure to RRG member-owners would be mandated.

In a statement, the National Risk Retention Association lauded the legislation, noting that it has bipartisan support. "We are working together with other groups to advance this bill," added Kim Wynkoop, Chair of the NRRA board.

Kevin Doherty, chairman of the Self Insurance Institute of America's Committee on Alternative Risk Transfer, said "SIIA has for many years supported both the availability of commercial property coverage to members of risk retention groups and the assurance of a consistent regulatory environment."

The bill's sponsors said they have introduced the legislation believing that modernizing the 1986 law creating RRGs will add capacity to a commercial property market impacted by catastrophic events in recent years.

The sponsors also noted that a Government Accountability Office study had foreseen the need for enhanced governance standards and regulation for RRGs.

IIABA officials cautioned that they have not yet taken a formal position on expanding the authority of risk retention groups.

But Charles Symington, senior vice president of government relations for the IIABA, noted "some concerns" with new provisions found in this year's legislation.

Mr. Symington said that, "of particular concern is the creation of a 'dispute mechanism' that would allow the Treasury Department to preempt a state's oversight of a risk retention group should the Treasury determine that the regulation is inconsistent with the risk retention group's home state regulation.

"We believe this new 'dispute mechanism' language could needlessly intrude on state regulation of insurance and we look forward to working with the sponsors of the legislation and other interested parties on rolling back or modifying this newly-added provision," he said.

But, Cliff Roberti, Self Insurance Institute of America director of government relations, defended the need for the provision.

He said there are many documented cases of non-domiciliary states that have unlawfully challenged or "second guessed" RRG licensing decisions by home state regulators, a clear violation of the 1986 law creating RRGs.

"Regrettably, the only recourse for an RRG to address state interference is to bring action in federal court," he said. "Given the resources of a state compared to a small, non-profit insurance company, RRGs are essentially left without any means for dealing with state intrusion," he said.

The new risk retention bill "creates an expedited dispute resolution mechanism that is quick and cost-efficient," said Mr. Roberti.