This week, the Big “I” participated in a panel discussion on a controversial bill that would revise the federal Liability Risk Retention Act (LRRA) to allow some risk retention groups (RRGs) to write nearly all forms of commercial insurance for many nonprofit 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 U.S. House of Representatives Financial Services Committee hosted the panel, which focused on H.R. 3794, the “Nonprofit Property Protection Act,” by Reps. Dennis Ross (R-Florida) and Ed Perlmutter (D-Colorado). This bill would expand current law, distort the competitive marketplace to the detriment of traditional insurance carriers and their agents, and put consumers at greater risk due to a lower standard of oversight. The Big “I,” as well as insurance regulators and many others in the insurance market, oppose the expansion.
Wes Bissett, Big “I” outside senior counsel for government affairs, represented the association on the panel. The Big “I” was the only trade association representing agents or brokers that was invited to participate. In addition to the Big “I,” a representative from the National Association of Insurance Commissioners and representatives from the Financial Services Roundtable spoke in opposition to H.R. 3794. Three representatives from the risk retention group market spoke in favor of the expansion.
Congress enacted the LRRA 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 traditional commercial insurers and their agent distribution force. RRGs are permitted to operate nationally, but 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 and solvency regulation, for example—in the other jurisdictions in which they operate. The LRRA prevents states from requiring RRGs to participate in the guaranty fund system meant to protect consumers in the event of insurer insolvencies. Many state insurance regulators have consistently criticized this lack of oversight, particularly as numerous RRGs have gone insolvent.
Supporters of RRG authority expansion now suggest there is an insurance need similar to the liability insurance crisis of the mid-1980s and that many nonprofit organizations and educational institutions are unable to obtain affordable commercial coverage in the traditional marketplace. These advocates, however, have yet to provide sufficient empirical data to support their assertions.
The Big “I” advocated against the expansion at the association’s Legislative Conference in April and will continue to do so on Capitol Hill, maintaining the argument that because the current commercial property marketplace is vibrant and competitive, there is no need to preempt state regulation and broadly expand the authority and scope of insurance products RRGs may offer. There is no “crisis” in the commercial market, and enactment of this proposal would create an uneven playing field within the insurance marketplace and harm consumers.
Jen McPhillips is Big “I” assistant vice president of federal government affairs.