In a report released yesterday, the GAO urged clarification of the Liability Risk Retention Act (LRRA) to reduce varying interpretations of the Act.  Proposed legislation also amends the LRRA to allow risk retention groups (RRGs) to provide commercial property insurance.  The legislation is known as the Risk Retention Modernization Act, HR 2126, and would standardize corporate governance standards, create federal arbitration which would settle disputes with states, and would allow RRGs to provide commercial property insurance.

The study found that RRGs have been profitable and growing, and have helped improve the availability of commercial liability insurance, especially in niche markets.  However, differing interpretations of LRRA have led to varying state regulations and disputes between RRG managers and state regulators.  For example, some states interpret LRRA to allow RRGs to write contractual liability coverage, whereas other states do not allow this coverage to be written by RRGs.  In 2010, more than 80% of RRGs were domiciled in Vermont, South Carolina, the District of Columbia, Nevada, Hawaii, and Arizona, whereas about 95% of their premium is written outside of their state of domicile.  Presumably, RRGs are often domiciled in these states due to financial and regulatory advantages.

What do you think of the Risk Retention Modernization Act?  Do you think allowing RRGs to provide commercial property insurance would benefit the industry?  Do you believe that clarification of LRRA would encourage the growth of RRGs and improve the availability of commercial insurance?

National Underwriter is reporting that legislation will be introduced in the U.S. House of Representative that would allow risk retention groups to sell commercial property insurance.  This legislation would also give the Treasury Department broad new powers to oversee the industry with authority to review disputes between risk retention groups and regulators in states where they are not domiciled and offer interpretations regarding the Risk Retention Act.

Currently, under the 1986 Risk Retention Act, risk retention groups are limited to offering liability insurance with the exception of workers’ compensation.

A similar proposal was introduced in 2008.  Supporters of this proposal include the Self-Insurance Institute of America, the National Risk Retention Association, and the Risk and Insurance Management Society.

Let us know what you think of this idea.