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To the editor: In a Dec. 18, 1995, editorial, "Louisiana Putting RRGs at Risk," your publication took to task legislation enacted during the 1995 session of the Louisiana Legislature and licensing procedures of the Louisiana Department of Insurance.
It is important that your readers are made aware of certain facts relating to the licensing of risk retention groups in Louisiana in order that they understand the procedures involved. In your article, you refer to "an unusual application procedure." This statement is misleading.
Risk retention groups are required to complete and file with this department the same application as any other foreign or alien insurer seeking to do business in the state of Louisiana.
Applications for foreign and alien insurers are accepted from March 1 to Sept. 30 of each year.
The information required to be filed with this department by insurers and risk retention groups seeking admission to this state is what would be expected of any prudent regulatory oversight and is necessary to protect the citizens of this state.
In your article, you further state that "risk retention groups have been a great success."
When I assumed office in November 1991, a Louisiana-domiciled risk retention group which issued medical malpractice policies was in receivership. At this time, we do not know what the final cost of the insolvency will be. However, in human terms it has been staggering. Claimants have been unable to recover for losses they suffered, and policyholders were left without adequate protection.
Since 1991, at least eight risk retention groups have been declared insolvent. Risk retention groups are prohibited from belonging to guaranty funds. Claimants and policyholders are exposed to significant losses in the event of insolvency.
Your commentary fails to point out the inherent danger in allowing a newly formed insurance entity to operate in 50 states simply by filing a financial report with the respective regulator.
Furthermore, it is not practical to expect that a domiciliary regulator can monitor the activities of a risk retention group in each state in which it does business.
It is incumbent upon insurance regulators to know what entities are doing business in their state and what type of coverage the entity is issuing. The purpose of the Louisiana licensing process is to confirm and provide a record of this information.
James H. Brown
Commissioner of Insurance
State of Louisiana
Baton Rouge, La.