There is a lot of anticipation surrounding the Government Accountability Office's investigation of some states' interpretation of the federal Liability Risk Retention Act. For months the GAO has been questioning risk retention group owners and managers, seeking comments on the treatment received from various states.
The latest is New Jersey, which only recently adopted a captive law. The state has proposed legislation that would exclude RRGs from providing liability insurance to taxicab drivers.
Robert H. "Skip" Myers Jr., general counsel of the National Risk Retention Association, sent a letter to N.J. Governor Chris Christie advising him that the bill, pending in the state legislature, would discriminate against risk retention groups.
In other instances, RRGs have for years reported paying extra fees, filling out additional forms and being asked for sensitive, unnecessary information such as social security numbers of board members. In some cases, RRGs have been issued cease-and-desist orders on lines of coverage by both domiciliary and non-domiciliary states.
NRRA responded with letters to the various states, explaining the illegality of such requests in light of the LRRA—which authorizes RRGs licensed in a single state to operate nationally, without additional licensing and free of most regulation by other states.
At the Captive Insurance Companies Association's annual conference in March, three GAO representatives met with RRG managers and later, RRG owners, to learn about their experiences with the various states. I sat in on the captive owners meeting on the condition that identities of attendees would remain anonymous.
More than a half-dozen RRG owners were present, relaying situations where states required payment of extra fees and had them fill out additional forms. Altogether, they said the fees can mount to thousands of dollars and the forms can require multiple hours to complete. Asked if they considered not paying the fees, the owners said they went ahead and paid them rather than risk being barred from operating in a state.
RRG owners and managers are hopeful the report will establish the limits of state insurance regulators. They also would like to see adoption of a dispute resolution mechanism.
But will the report actually make a difference? Some in the industry are skeptical, especially since this is the second GAO report. The first was completed in 2005, but did not examine these particular issues. Since that report, the National Association of Insurance Commissioners has been addressing aspects dealing with state regulation and governance.
People I have talked to say that unfortunately, little to nothing has been done on the issue of states' interference with the LRRA. And while suggestions might be made by the GAO this time around, they say there is no guarantee those recommendations will carried out.
This would be a shame, since the RRG industry is well regulated overall and serves a definite purpose. One example is ANI RRG in Nevada, which writes auto liability insurance for non-profit associations. The Nevada Division of Insurance issued a cease-and-desist order preventing the risk retention group from operating in the state.
It's ironic that Nevada has chosen to fight this battle, since a number of RRGs are domiciled there. Meanwhile, ANI RRG is chartered in Vermont, known for its thorough oversight of captives.
At a time when about 30 domiciles exist and new ones are being formed—all competing for new captive formations—those states making it unnecessarily difficult for RRGs and other captives to operate may want to rethink their strategies.
And so the RRG industry awaits this latest report, again hoping the GAO's recommendations will be heeded. Meanwhile, they continue to pay the fees, fill out the extra forms and remind regulators of court cases that have backed the LRRA.
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