GAO Probe Overdue

Does the Government Accountability Office need to look into whether state regulators are overstepping their authority in supervising risk retention groups? As a popular insurance industry TV commercial goes: Does Elmer Fudd have trouble pronouncing “wabbit”?

In late July, a probe was ordered into whether state insurance regulators are going too far in the burdens they place on RRGs. 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 such an investigation, I say it's about time!

As I wrote in an article about this issue on page 21, another state–Nevada–has been cited for RRG harassment by the National Risk Retention Association. The group requested in a letter that Nevada 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 RRG in question–the Alliance of Nonprofits for Insurance–is not allowed to write commercial auto liability coverage in the state, which NRRA says violates 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 vehicles 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 explained.

After writing the piece, I did a search of past articles I've done about similar requirements imposed by other states:

o In 2008, Louisiana officials were persuaded by NRRA to drop a plan to charge RRGs a $1,000 fee–a breach of LRRA.

o In 2008, Maine was contacted by NRRA, requesting 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 LRRA.

o 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.

o In 2006, Missouri dropped a requirement for state certification of RRGs, at NRRA's request, but added a new filing requirement for annual statements.

o In 2006, Washington State was warned by NRRA it was making an improper effort to impose its own regulations on RRGs.

o In 2005, North Carolina set restrictions NRRA said were in violation of LRRA.

These are just a few examples that have cropped up over the years.

The issue with Nevada illustrates the need for federal intervention, when necessary. Although Congress enacted the LRRA, it left its implementation up to the states, each of which comes up with 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. The intent of Congress, as expressed in the LRRA, was to avoid such 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.

Caroline McDonald

Assistant Managing Editor