Does the Government Accountability Office need to look into whether state regulators are overstepping their authority in overseeing risk retention groups?
As a popular insurance industry TV commercial goes: Does Elmer Fudd have twubble pwonouncing his Waarz?
In late July, a federal probe was ordered into whether state insurance regulators are going too far when it comes to risk retention groups.
The directive came from Rep. Dennis Moore, D-Kan., who chairs the House Oversight Committee on Financial Services.
When the report will be delivered remains to be seen, but as to the need for the report, I say it's about time.
As I wrote in an article for the Aug. 9 issue of National Underwriter, another state, Nevada, has been contacted by the National Risk Retention Association. The group requested in a letter that it stop "discriminating against RRGs in a manner prohibited by the law."
Robert H. "Skip" Myers, general counsel for NRRA, said Nevada has stated that the Alliance of Nonprofits for Insurance, RRG, is not allowed to write commercial auto liability coverage in the state—violating the federal Liability Risk Retention Act of 1986.
This is surprising, since Nevada is a captive domicile with 25 RRGs of its own, according to the Risk Retention Group Directory & Guide. Furthermore, the RRG in question is domiciled in Vermont—no slacker when it comes to regulating its captives.
The Nevada RRG is for nonprofit groups and the autos in need of liability coverage are used to transport people who can't afford cars or can't drive for medical reasons, to places like doctor's offices, Mr. Myers said.
After writing the article, I did a search of past articles I've written about similar requirements of other states. Among the instances found:
• In 2008, Louisiana officials were persuaded by NRRA to drop a plan to charge RRGs a $1,000 fee, a breach of the LRRA.
• Maine was contacted by NRRA in 2008, requesting that it drop a requirement for RRGs to submit antifraud and abuse annual reports. Only the state of domicile may request such a filing, according to the LRRA.
• In 2007 NRRA objected to Massachusetts' request for a number of items, including social security numbers and other personal information from RRG officers and directors.
• In 2006 Missouri dropped a requirement for state certification of RRGs, at NRRA's request, but added a new filing requirement for annual statements.
• In 2006, Washington State was warned by NRRA that it was making an improper effort to impose its own regulations on RRGs.
• In 2005 North Carolina set restrictions that NRRA said were in violation of the federal law.
These are just a few examples that have cropped up over the years.
The issue with Nevada illustrates the need for federal oversight when necessary. Although Congress enacted the LRRA, it has left its regulation up to the states, each of which has its own requirements and that is the root of the problem.
While the RRG industry isn't perfect—there will always be insolvencies and other issues—like other insurers, RRGs are regulated by their state of domicile. Other state requirements often overlap, requiring extra work and duplication. Congress' intent, as expressed in the LRRA, was to avoid this overlapping and duplicative regulation.
"We want one rule all over the country, and we can live with that. What we can't live with is 50 rules," Mr. Myers said.
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