Making The Case For RRG Modernization

Unfortunately, some states make it difficult for RRGs to do business with processes that take months or years for an RRG to become registered, including everything from improper registration fees to fraud program fees, malpractice reporting fees, desk audit fees, and other burdensome requirements contrary to the intent of the LRRA.

For years, the National Risk Retention Association has worked with the National Association of Insurance Commissioners on this issue. Where necessary, NRRA has gone to the federal courts to protect the rights of RRGs to operate under the federal law. In cases critical to the industry, NRRA prevailed. However, the resolution of individual disputes through costly and time-consuming federal litigation has not solved the problem.

In 2009, NRRA wrote to the NAIC requesting that the association amend its accreditation standards to encourage all states to comply with the federal law. NRRA provided NAIC with a veritable "laundry list" of cases, anecdotes of overreaching by various states, and the patently unfair and oppressive cost to these RRGs caused by the practices.

Sadly, the request was ultimately denied.

NRRA's position is simple: If the NAIC is unable to control its own member states by using its accreditation process, nor to secure adherence to its own handbooks and guidelines for RRGs, then necessity dictates there be a higher and different authority with dispute resolution powers to protect RRGs from abuses of state regulatory authority.

In a 2005 report, the General Accounting Office concluded that the RRG industry is a viable and useful mechanism for alternative risk transfer. Because the 2005 report did not focus on evidence of overregulation, in July of this year Reps. Dennis Moore, D-Kan., Suzanne Kosmas, D-Fla., and John Campbell, R-Calif., asked the GAO to conduct a new study to determine how the regulation of RRGs has changed since 2005.

NRRA is confident the GAO will find that some states continue to interfere with RRG operations through administrative orders, filing requirements, fees and other activities that violate the intent of the federal legislation enacted 24 years ago.

The risk retention industry has no alternative but legislation.

HR 4802, the Risk Retention Modernization Act, was introduced in the House this year. It would give the Treasury Department certain authority to oversee aspects of the RRG sector.

Most important, the Act would provide a dispute resolution mechanism to enforce the LRRA. Lack of an affordable way to enforce the law in a reasonable period of time has been an insurmountable obstacle to RRG operations in some states. Without a dispute resolution mechanism, it is impossible to realize the intent of the federal law.

The Modernization Act will be brought up again next year in the House, and NRRA expects that a companion bill will be introduced in the Senate early in the session. NRRA will join with other industry organizations that represent the alternative risk transfer segment of the insurance industry to support this bill.

The Act gives the Treasury Department authority to resolve disputes between RRGs and individual states through an arbitration process. This mechanism will allow both parties a fair hearing but will even the playing field by giving smaller companies an opportunity to make their case without the excessive cost and lengthy process of appealing to the federal courts.

NRRA is not trying to overturn state regulation of insurance. Rather, its strategy is relatively simple: to find legislative, administrative and judicial solutions that encourage the states to abide by the LRRA without having to sacrifice any of the regulatory powers reserved to those states by federal law.

In addition to creating a dispute resolution mechanism, the proposed legislation would expand the authority of RRGs by allowing them to write commercial property insurance. It also would address a concern of the NAIC by establishing basic standards for corporate governance. Lack of uniform governance standards has long been a complaint of state regulators.

HR 4802, which will be reintroduced in the next Congress, is similar to HR 5792 that passed through committee in the last Congress but withered behind the tsunami of more pressing political issues on Capitol Hill.

NRRA remains undaunted, however, and will continue to campaign vigorously for legislation to eliminate imposition by various states of multiple, inconsistent regulatory hurdles for RRGs to overcome, simply to be allowed to do what the federal law has permitted them to do since 1986.

NRRA will continue to press for enactment of the modernization bill next year and mount a support campaign on the part of its members across the country. The 1986 Act provided a mechanism to resolve the liability crisis by authorizing companies organized by their own members to operate across state lines when licensed in a single state.

Unfortunately, the authors of the Act did not anticipate the resistance that some states would put up to defend against what they considered a threat to state regulation.

As Brian Braley, president of NRRA, said recently, "A federal statute that promotes a single regulatory framework for RRGs but has no enforcement mechanism is simply legislation that is not finished."

NRRA is committed to finishing the job in 2011.