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RISK RETENTION ACT

THE ISSUE IS. Potential expansion of the Liability Risk Retention Act to allow risk retention groups and risk purchasing groups to provide additional lines of commercial insurance.

IT'S IMPORTANT BECAUSE. In 1981, Congress passed the Products Liability Risk Retention Act to allow risk retention groups ("RRGs") to cover product liability exposures. After several committee hearings in the 99th Congress, Congress expanded the 1981 Act to allow the RRGs to cover all casualty risks except workers compensation.

The revised law, the Liability Risk Retention Act ("LRRA" or "The Act") of 1986, was signed into law by President Reagan on Oct. 27, 1986. The LRRA currently applies to commercial lines liability coverage excluding workers' compensation, and does not apply to personal lines coverage. Under the Act, risk retention groups that meet certain licensing requirements of one state may operate nationwide. Except for the RRG's chartering state, the risk retention group is exempt from any state law, rule, or regulation that regulates or makes an RRG unlawful (with certain exceptions).

Congress had been convinced that an expansion of the Risk Retention Act of 1981 was needed to facilitate the operation of group insurance programs. Congress presumed that the Act's expansion would reduce costs, provide alternative mechanisms for insurance coverage, and promote greater premium competition among general liability insurers. As a result, it was believed that expanding the law would encourage insurers to set premium amounts that would compete with the new formations created under the new Act.

Legislation has been introduced in the 108th Congress that would serve to expand the scope of the LRRA. H.R. 1158, the "Medical Liability Insurance Crisis Response Act of 2003," was introduced by Rep. Max Sandlin (R-TX) on March 6, 2003. H.R. 1158 would serve to amend the LRRA by increasing the current level of protection of RRGs against state retribution and allow for more equal treatment between risk retention groups and traditional insurers.

Additionally, there is increased discussion among various interest groups in the private sector about the need for amending the LRRA and broadening the Act to allow risk retention and purchasing and groups to also cover property risks. Such legislation would be welcomed by RRGs, who would then be permitted to write additional commercial lines. At the same time, however, it is expected that many companies would oppose such LRRA expansion efforts, as such changes could lead to what they would perceive to be additional unfair competition.

NAMIC POSITION. NAMIC is generally supportive of any efforts in Congress that would better provide for open and fair competition in the insurance industry. However, it is important that the same rules and regulations apply to all insurers, whether they be risk retention groups or traditional insurance companies. NAMIC will continue to examine all proposed legislation that would serve to expand the scope of the Risk Retention Act.

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