Risk Retention Groups Face Regulatory Challenges

By Kurland, Orin M. | Risk Management, October 1993 | Go to article overview

Risk Retention Groups Face Regulatory Challenges


Kurland, Orin M., Risk Management


"The state and federal regulatory tug-of-war is creating an unstable and uncertain future for this alternative risk financing mechanism."

With the advent of the 1981 Product Liability Risk Retention Act, and later with the Federal Liability Risk Retention Act of 1986, risk retention groups (RRGs) began to sprout up during the 1980s despite resistance from state insurance regulators. Today, that resistance has lessened, but the threats - from new regulation being contemplated by both the National Association of Insurance Commissioners (NAIC) and the U.S. Congress - to the RRGs' existence as a viable alternative risk financing mechanism still remain.

When Congress enacted the Risk Retention Acts of 1981 and 1986, it made it easier for insured with similar risk exposure spread across a number of states to obtain coverage. For the most part, these statutes: "eliminated the regulatory requirement for multiple admission or fronting in every state in which a risk was insured; permitted economies of scale in brokerage; and allowed efficiencies in loss prevention and claims management," said Philip Olsson, a partner with the Washington, D.C., law firm of Olsson, Frank & Weeda. "Yet, I have never seen such an unstable situation for captives and risk retention groups, as I've seen today," stated Jon Harkavy, vice president and general counsel of USA Risk Group in Arlington, Virginia. Speaking at the Vermont Captive Insurance Association's 8th Annual Conference held recently in Burlington, Vermont, Mr. Olsson and Mr. Harkavy were joined by a panel of industry experts who expressed concerns over both state and federal insurance regulation proposals and their effects on risk retention groups.

Underwhelming Support

Regarding Proposals for increased federal regulation, the panel, by and large, showed reluctant support. "But extensive federal regulation begets bigness," Mr. Olsson stated, a comment that was very much indicative of the panelists' wariness over this issue. However, Mr. Harkavy's overall belief was that if the federal government can be convinced that the mechanisms to ensure RRG solvency are in place, RRGs "will pretty much be left alone to operate on a multistate basis."

As contemplated under the Risk Retention Act, an RRG must become licensed in a domicile and must meet the same "requirements that apply to a property/casualty insurer, subject to all the laws, rules and regulations of that domicile as they relate to property/ casualty insurers," noted Terence Cooke, senior vice president and corporate counsel for Home Owners Warranty Corp. in Arlington, Virginia. As such, Mr. Olsson pointed out that the Risk Retention Act also contains some extensive safeguards against abuse: "It requires multistate filings; allows examination by the insurance commissioner in any state if the domiciliary state has not begun an examination or has refused an examination; requires that risk retention groups comply in every state with state laws regarding deceptive of false or fraudulent acts or practices; and requires that RRGs comply with injunctions where a state commissioner petitions a court regarding hazardous financial conditions." However, Mr. Olsson felt that the NAIC has not fully utilized the ample enforcement tools that exist in the Risk Retention Act. Thus, "we find RRGs are too often criticized as operating in some sort of unregulated loophole. And that is just incorrect," he said.

Mr. Harkavy expressed concern that everybody has been focussing on the NAIC's work on the fronting issue, when the "real concern with the NAIC is risk-based capital. People are telling me that risk retention groups, captives, etc., all might have to come up with a lot more capital to survive under the new standards." It was Mr. Olsson's belief, however, that the "NAIC should be better able to work with the kind of rational preemption contained in the Liability Risk Retention Act, than it would with the more extensive preemption" being proposed by Congress. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Risk Retention Groups Face Regulatory Challenges
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.