Legislative/Regulatory Restrictions on Risk Retention Groups Rejected in New Jersey and Nevada

WASHINGTON, DC--(Marketwire - May 11, 2011) - The National Risk Retention Association reported that Governor Chris Christie sent back to the Assembly legislation that would discriminate against Risk Retention Groups (RRG) and Nevada Insurance Commissioner Brett Barratt rejected a proposal to impose fees on RRGs that would violate the federal Liability Risk Retention Act of 1986 (LRRA).

"We commend Governor Christie and Commissioner Barratt for taking decisive action to eliminate state mandates not permissible under the LRRA that could have led to lengthy and expensive litigation," said Brian Braley, Chairman of NRRA. The LRRA, a federal law, authorizes RRGs licensed in a single state to operate nationally without additional licensing and free of most regulation by other states.

The New Jersey legislation, Assembly Bill 1471, would have required taxicab drivers to obtain insurance from an insurer that is a member of the New Jersey Property Property-Liability Guaranty Association. Federal law expressly prohibits RRGs from becoming members of state guaranty associations so the Assembly Bill would have excluded RRGs from providing liability insurance to taxicab drivers.

In returning the Bill to the Assembly, Governor Christie stated that the legislation "would eliminate the role of Risk Retention Groups, which provide a form of self insurance; and currently issue approximately 65 percent of taxicab liability insurance coverage in the State." The Governor added that the proposed bill "may have the unintended consequence of making it more difficult for taxicab owners to obtain insurance coverage, leading to higher insurance costs ultimately absorbed by consumers."

In Nevada, Commissioner Barratt rejected a plan to impose so-called "desk audit fees" in connection with State premium taxes. Under the federal law, states are authorized to tax RRG premiums, but there is no provision for imposition of audit fees. In response to a letter from Robert H. Myers, Jr., NRRA General Counsel, Commissioner Barratt said any RRGs contacted earlier by the Insurance Department should rest assured that "desk audit fees" would not be required.

"The Bill sent back to the Assembly by Governor Christie and the effort by Nevada Examiners to exact audit fees are examples of states interfering with the legal operation of RRGs under federal law and reinforce the need for Congress to provide a mechanism to enforce the Liability Risk Retention Act," Braley said. He pointed out that legislation that died in the last Congress is expected to be reintroduced this year to provide for arbitration of disputes with states. "NRRA is pleased with the responses of New Jersey and Nevada in these cases. We commend their actions," Braley added.

NRRA is the trade association that represents the interests of Risk Retention Groups, Purchasing Groups, and other alternative risk transfer mechanisms. There are 251 RRGs active today writing some $2.5 billion gross premiums.