National Risk Retention Association Reports to Federal Insurance Office on Need for RRG Reform

WASHINGTON, DC--(Marketwire - Dec 21, 2011) - Modernization of the federal law that allows Risk Retention Groups (RRG) to operate nationally when licensed in a single state is essential to stop a number of states from interfering with RRG operations in violation of the law, the National Risk Retention Association (NRRA) advised the newly formed Federal Insurance Office (FIA).

In a letter to Michael McRaith, FIA Director in the Treasury Department, NRRA General Counsel Robert H. Myers, Jr. cited a long record of states encroaching on RRG operating authority granted by the Liability Risk Retention Act of 1986 (LRRA). "Even though the law may be relatively clear, there is no immediate remedy for RRGs against state regulators for failure obey it," Myers wrote.

He stated that without an enforcement mechanism, RRGs must go to the federal courts for relief, a long, expensive process that most RRGs cannot afford. "In fact, even when a court has entered a decision favorable to RRGs, non-domiciliary states (states other than the state in which the RRG is chartered) have construed the decision narrowly, ignored it, or dismissed it as being binding only in the circuit in which it was issued.

The Liability Risk Retention Act of 1986 was intended to allow businesses and charities to form companies known as RRGs to write liability insurance on a multi-state basis without excessive and overlapping state regulation. "Over the 25 years since the LRRA was last amended, that freedom of operation has been eroded by the states," Myers told FIO.

NRRA has endorsed federal legislation introduced in the House (HR 2126) that would create a federal dispute resolution mechanism, allow RRGs to write commercial property insurance and establish uniform corporate governance standards for RRGs. "A federal agency-based dispute resolution process would facilitate uniform application of the LRRA and promote economic efficiency for all RRGs, but most effectively for relatively small-sized RRGs that populate a large portion of the industry. Due to high monetary and business costs associated with legal actions and appeals, many RRGs are forced to comply with requests and requirements that violate the LRRA," Myers wrote.

The NRRA letter was written in response to a call by FIO for public input on a report to Congress regarding how to modernize and improve the system of insurance regulation in the United States. NRRA is the professional association that represents Risk Retention and Purchasing Groups (PG). It was formed in 1987 and is the only trade association dedicated to the successful development, education and promotion of alternatives to traditional insurance in the United States. NRRA promotes RRGs and PGs as practical, economical, efficient and financially sound options for distributing the liability risks of insured members.