For nearly a quarter of a century, companies that were finding it hard to get liability insurance, or to get it at a reasonable rate, have had the option of linking up with other businesses and forming their own so-called risk retention group (RRG)--basically a collective captive insurance company that shares the risk across the group.
Now, a bipartisan effort is under way in the House of Representatives to extend that option to companies that want to insure property.
Reps. Dennis Moore (D-Ky.) and John Campbell (R-Calif.) have introduced the Risk Retention Modernization Bill of 2010 in the House Financial Services Committee, hoping to either win passage by Congress outright or add the measure as an amendment to financial reform legislation currently working its way through both houses.
Their bill has the backing of the Risk and Insurance Management Society (RIMS), but is opposed by the National Association of Insurance Regulators. "State regulators have never liked RRGs, and they're always throwing up roadblocks," says Michael Mead, president of M.R. Mead & Co., a Chicago insurance intermediary specializing in captives and alternative risk finance. "They feel that the traditional insurance marketplace can solve risk issues without the need to create new structures."
A similar effort to broaden the reach of RRGs beyond liability coverage was killed in Congress last year. But Scott Clark, a legislative specialist at RIMS who also works as risk manager for Miami-Dade Public Schools, says, "Our staff in D.C. thinks the bill has a good chance this time. There's a lot of movement on insurance regulation, and this bill is in keeping with the whole movement toward a federal regulatory role in insurance, which is something RIMS supports."
Like captive insurance companies, RRGs are chartered in a domicile state, but unlike captives, existing law requires other states to allow RRGs to operate in their jurisdictions without having to obtain separate charters. One controversial feature of the new legislation is that in addition to expanding RRGs' market to include property coverage, it would grant the Treasury Department the role of resolving disputes among state regulators.
Robert "Skip" Myers Jr., general counsel for the National Risk Retention Association, says the 250 RRGs currently operating primarily provide liability coverage for doctors groups, hospital groups and some trucking companies. If RRGs are permitted to insure property, he predicts new groups will be formed by residential and commercial property companies and construction firms.
RIMS' Clark notes that he has only been able to secure $250 million worth of property coverage for the Miami-Dade school district's $8.2 billion in property. At a cost of $25 million a year, that limited coverage comes with a $100 million deductible. "There is really no competition right now," Clark says, adding, "If we could set up an RRG with other schools, for example in California, we could get more coverage and bring the costs down."