Risk retention group legislation would allow property coverReprints
The risk retention group sector is deeply divided over legislation that would enable just a sliver of the nation's more than 200 RRGs to write property coverage for policyholders.
Under current law, RRGs, which are special group-owned captives, can write only commercial casualty lines — except workers compensation — for member owners.
But H.R. 3794, introduced in the House of Representatives by Reps. Dennis Ross, R-Fla., and Ed Perlmutter, D-Colo., would narrowly expand RRGs' underwriting authority to allow the groups to provide property coverage for policyholders that are nonprofit organizations with tax-exempt status or educational and educational-related institutions that are nonprofit organizations or governmental entities.
In addition, an eligible RRG would have to been operating for at least 10 years and maintain capital and surplus of at least $10 million.
Some supporters say the legislation could be a first step toward allowing all RRGs to write property coverage.
“This seemed like our best chance to get the foot in the door, to allow a limited number of risk retention groups to take advantage of adding property,” said Richard Smith, president of the Vermont Captive Insurance Association in Burlington, Vermont. “My hope would be that if Congress is able and willing to pass this, then in the near future we would be able to expand that to a broader group moving forward.”
Others say the expansion would meet a policyholder need.
“Small monoline property policies, without the liability coverage included, are something the insurance industry typically doesn't want to offer,” said Pamela Davis, president and CEO of the Vermont-domiciled Alliance of Nonprofits for Insurance Risk Retention Group in Santa Cruz, California. “This can also make it difficult for nonprofits who are insured by an RRG to find the insurance they need.”
For others, the proposed coverage expansion as one of fairness.
“RRGs that insure groups like these can provide millions of dollars in liability coverage for the van driver but can't cover a few thousand bucks to replace the van,” said David Provost, Vermont's deputy commissioner of captive insurance in Montpelier.
Not helpful to all
But the trade group that represents many of the nation's 236 risk retention groups and their brokers and consultants, opposes the legislation because the property coverage expansion would not be available to all RRGs.
The National Risk Retention Association “remains diligent in safeguarding against any initiatives that either do not support the majority of our members or the overall industry, or which might harm the business interests of even some of our members,” Joe Deems, NRRA executive director, said in a statement.
“We look forward in the next session of Congress to working with the bill's sponsors and proponents in advance of the legislation's introduction, to draft a bill of broader benefit to the risk retention and purchasing community that will not prejudice the existing rights of these entities under the federal Liability Risk Retention Act,” Mr. Deems added.
“It would have been wonderful if it was offered for more people, but I would have to say about 99% of RRGs won't benefit from it,” said Jon Harkavy, an NRRA officer and vice president and general counsel of RRG manager Risk Services L.L.C. in Washington.
“The bill has a very slim chance of passing, mainly due to the insurance trade organizations being against it,” Mr. Harkavy said.
If the measure were to win congressional approval, it would be the second time that lawmakers have agreed to amend the law.
The original Risk Retention Act, approved in 1981, allowed RRGs to write product liability and completed operations coverage for policyholder members nationwide after meeting the licensing requirements of one state.
Just a handful of RRGs were formed, though. When premiums for many lines of coverage were soaring in 1986, federal lawmakers expanded the law to allow RRGs to write all commercial casualty lines of coverage — except workers comp — for member-owners.