Big ‘I’ Submits Testimony on Proposed Risk Retention Act Expansion

This week the House Financial Services Committee’s Subcommittee on Housing and Insurance held a hearing titled, “Examining Insurance for Non-profit Organizations”. The hearing focused on a proposal to expand the federal Liability Risk Retention Act (LRRA) to allow some risk retention groups (RRGs) to write nearly all forms of commercial insurance for many non-profit organizations and educational institutions while retaining a weaker and preferential system of regulatory oversight. Currently, RRGs are appropriately only permitted to provide commercial liability coverage to their customers. The Big “I” submitted testimony opposing this controversial proposal.

Insurance regulators and many others in the insurance market also oppose the proposed expansion. Tom Santos from the American Insurance Association (AIA) testified at the hearing and provided examples from his member carriers that adequate and affordable property and liability coverage is currently available in the marketplace to service all nonprofits. But supporters of the proposed expansion suggested at the hearing that there is a property insurance need similar to the liability insurance crisis of the mid-1980s and that many non-profit organizations and educational institutions are unable to easily obtain affordable property coverage in the traditional market.

The LRRA was enacted by Congress in 1986 to address the significant liability insurance crisis that plagued the U.S. economy during the early-to-mid 1980s. The LRRA broadly preempts state insurance law and subjects RRGs to a far less rigorous level of regulatory oversight than what traditional commercial insurers and their agent distribution force face. RRGs are permitted to operate nationally, yet they are regulated almost exclusively by their domiciliary state regulators. Additionally, RRGs are exempt from licensing requirements and most other forms of oversight (including rate and form review, solvency regulation, etc.) in the other jurisdictions where they operate. The LRRA prevents states from requiring RRGs to participate in the guaranty fund system that is meant to protect consumers in the event of insurer insolvencies. This lack of oversight has been consistently criticized by many state insurance regulators, particularly as numerous RRGs have gone insolvent.

The current property marketplace is vibrant and competitive, so there is no need to preempt state regulation and broadly expand the authority and scope of insurance products that RRGs may offer. The facts make clear that there is no “crisis” in the commercial market (as there was with the commercial liability insurance crisis in the 1980s) and enacting this proposal will needlessly create an uneven playing field in the insurance marketplace and harm consumers due to the lax oversight afforded RRGs.

Jen McPhillips is Big “I” vice president of federal government affairs.

Jen McPhillips is Big “I” vice president of federal government affairs.