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CHICAGO-The alternative risk financing market has grown to the point that both traditional insurers and state regulators seem to be accepting the need to work with it rather than against it, a state regulator says.
"Both the conventional insurance market and regulators have come to accept the alternative insurance market," said Michael J. Moriarty, supervising examiner in the financial condition property/casualty bureau of the New York Department of Insurance. "Perhaps it's an 'if you can't beat them, join them' mentality."
"We have to adapt to the alternative insurance market in the regulatory community," Mr. Moriarty said as part of a panel on regulatory relationships at the National Risk Retention Assn.'s annual conference last month in Chicago. "It's not the government's job to tell the insurance market which way it should go," he said.
"The alternative insurance market is here to stay, and that's what's changing the attitudes of insurance regulators," Mr. Moriarty said.
Another panelist said Mr. Moriarty's words bode well for the future of the relationship between risk retention groups and other alternative risk financing vehicles and state regulators.
"I think we're seeing as we listen to Mike Moriarty an end to the antagonism between the alternative markets and regulatory agencies," said Philip C. Olsson, principal with the Olsson, Frank and Weeda P.C. law firm in Washington and counsel to the NRRA.
Another panelist, Jeffrey P. Johnson of the Primmer & Piper law firm in Montpelier, Vt., cautioned, though, that some state insurance regulators either don't understand or are wary of the Risk Retention Act, the federal law that allows risk retention groups to operate nationwide after meeting the licensing requirements of one state.
"The basic point is the beat goes on, and while we found many state regulators who understand the Risk Retention Act, we found many others who still don't like it," Mr. Johnson said.
Mr. Moriarty agreed that many regulators don't like the law. "I think states still generally oppose the Risk Retention Act, but only because it was forced on us by the federal government," he said.
While he said he thinks many viewed the Liability Risk Retention Act of 1986 as "an act of convenience by Congress-it was a response without a responsibility," Mr. Moriarty added that "In any event, I think what many regulators have failed to recognize is that it's a law."
Stressing that "Litigation should be a remedy of last resort," Mr. Olsson suggested it's a lack of that understanding that's behind the legal wrangling over risk retention group regulation in Louisiana.
Litigation "is necessary when a state interprets the Risk Retention Act differently from the NRRA and differently from the other members of the NAIC, and that's the kind of situation that's led to the litigation in Louisiana," Mr. Olsson said.
The NRRA challenged a Loui-siana law that imposed capitalization and other requirements on risk retention groups licensed in other states and that want to do business in Louisiana.
While saying he thinks federal Judge John V. Parker's June 1996 ruling will be upheld in the case of NRRA vs. Brown, Mr. Olsson said, "We have to be ready for a whole variety of questions from the appeals court in New Orleans."
After Judge Parker ruled in the NRRA's favor last year (BI, June 10, 1996), Louisiana appealed his verdict. Oral arguments on the appeal are scheduled to begin April 28.
Mr. Johnson said he thinks the experience with risk retention groups shows that much of what Congress hoped to accomplish with enactment of the Risk Retention Act has, in fact, been achieved.
Risk retention groups have proved a good source of needed coverages for their members, stabilized prices in the market and have given consumers options to the traditional market, he said.
And, Mr. Johnson added, they've had a very good track record, "particularly given that right from the start they are providing coverage that was not available in the traditional market."
"By and large, I think if you look at the risk retention experience, it has been a wild success," Mr. Johnson said.
On other regulatory fronts, Mr. Moriarty suggested that changes in the National Assn. of Insurance Commissioners accreditation process fit the goals of NAIC accreditation.
Those changes emerged with the resolution of a long-running accreditation dispute with Vermont over that state's approach to risk retention group regulation.
"The goal of accreditation is to achieve a consistent high standard of regulation among all the states," Mr. Moriarty said.
Under what's become a more "streamlined" accreditation process, only portions of the NAIC's model law that are "absolutely critical" will be considered in accreditation decisions, Mr. Moriarty said.
The New York examiner suggested that in today's climate in which commercial liability coverage is widely available, there is no threat of a federal takeover of insurance regulation and there is a viable alternative market, regulators "can probably take more time to deliberate when we do make big policy decisions."
In New York, "We have a reputation as a heavy-handed regulator," Mr. Moriarty conceded. "That's something that we're trying to change."
He added that he expects a bill to allow the formation of captives in New York to be reintroduced this year.
The convergence of financial and insurance markets raises the question of potential shifts in regulatory responsibilities, and there are questions about who will regulate the insurance subsidiaries of banks, Mr. Moriarty noted.
While officials in the federal Office of the Comptroller of Currency have indicated they don't want to regulate insurance, "I think it's a little naive for the states to take that to mean the feds want no part of regulating these activities," Mr. Moriarty said.
Gregory S. Katz, a senior associate with the Wilson, Elser, Moskowitz, Edelman & Dicker law firm in New York, moderated the session.