GAO Report Cites Need for Congress to Update Liability Risk Retention Act

WASHINGTON, DC--(Marketwire - Jan 12, 2012) - The Government Accountability Office (GAO) report issued this week cites the need to update the Liability Risk Retention Act of 1986 (LRRA) but does not go far enough in affirming the authority for Risk Retention Groups (RRG) to operate nationally with only limited regulation by states where RRGs are not licensed, says the National Risk Retention Association.

"We're pleased that the GAO has recommended Congressional action to clarify provisions of the LRRA with respect to state regulation but disappointed that the agency's report failed to take a strong position in support of RRGs where certain states have imposed requirements that clearly are in direct conflict with the federal law," said Sanford Elsass, Chairman of NRRA.

The GAO report recommended that Congress consider: "Clarifying whether, (1) RRG registration requirements beyond those currently specified in LRRA are permitted in non-domiciliary states (states other than the state in which the RRG is licensed) and (2) fees in addition to premium and other taxes could be charged to RRGs by non-domiciliary states in which they operate."

"The GAO report noted that legislation (HR 2126) has been introduced that provides for a federal arbitrator to resolve disputes between RRGs and state regulators but it does not take a strong stand against efforts by some states to encroach on the right of RRGs to operate with only limited regulation as authorized by the federal law (LRRA)," said Joseph Deems, Executive Director of NRRA and Chair of the Association's Government Affairs Committee.

"Clearly, the time has come for Congress to act. Legislation to put teeth into the LRRA has been before Congress for three years. The Risk Retention Modernization Act (HR 2126) would establish a dispute resolution mechanism to deal with state actions that put burdensome requirements on RRGs. Currently, the only way for RRGs to assert their rightful authority is through lengthy, costly litigation. Federal courts have ruled in favor of RRGs in landmark cases but without an enforcement mechanism in the law there is no efficient, timely way for RRGs to assert their rights," Deems said.

Risk Retention Groups were authorized under LRRA to operate nationally with only limited regulation by states other than the state in which they are licensed. The legislation was intended to make essential liability insurance widely available to business and professional groups that could not obtain affordable coverage in the traditional insurance markets. Since the law was enacted in 1986, RRGs have grown into an important segment of the insurance market. There are 254 RRGs generating more than $2.6 billion premium today providing coverage to markets underserved by the major insurance companies. The National Risk Retention Association is the voice of the RRG industry.