A movement is underway to modernize the 33-year-old Liability Risk Retention Act (LRRA) by reintroducing legislation allowing risk retention groups (RRGs) to provide commercial property insurance coverage.
Insurance is regulated at the state level in the US. The passage of LRRA in 1981 and its expansion in 1986 were two of the few instances when the federal government intervened, in response to consumers’ outcry for affordable insurance coverage.
Where LRRA Came From
Congress passed LRRA in 1981 because many businesses were unable to obtain product liability insurance at any reasonable cost. Congress expanded LRRA in 1986 from product liability to commercial liability and also clarified many regulatory issues originally unclear in the 1981 Act.
The Act has increased capacity, choice, competition, and moderated the dramatic cycles of commercial insurance. As a result, it has led to a seismic shift in the commercial liability insurance sector, to the insureds’ benefits.
As of this writing, gross written premium by all RRGs total more than $2.6 billion. A. M. Best has found that RRGs outperform their commercial counterparts in financial and regulatory ratios.
LRRA’s success has also highlighted the need for its further expansion, especially after 33 years of practice.
Many RRGs offer various lines of coverage except those not yet permitted under LRRA—chief among them is commercial property insurance. As a result, members of these RRGs have to carve out their property risk and purchase coverage from the commercial market.
Because RRGs serve a single industry, they are able to develop and share best practices including risk management initiatives, which isn’t common among commercial carriers. The inclusion of commercial property insurance under LRRA could potentially expand RRGs’ success and certainly prompt the industry toward better risk management.
Who Supports it
The new movement has gained wide-ranging consumer and captive industry support. United Educators Insurance RRG testified on “Legislative Proposals to Reform Domestic Insurance Policy” in front of the Subcommittee of Housing and Insurance of the Financial Services Committee of the US House of Representatives on May 20, 2014.
The draft bill, if enacted, would allow a currently licensed RRG to expand its insurance coverage to include all forms of commercial insurance other than group health, life, disability, or workers’ compensation. Examples of additional lines of coverage include
- fleet auto physical damage
- business interruption
To make sure that RRGs continue their successes, the bill further stipulates that RRGs must have been engaged in the insurance business for not less than five consecutive years, and maintain capital and surplus of at least $5 million, in order to qualify.
As RRGs are subject to the National Association of Insurance Commissioners (“NAIC”) state accreditation requirements, the inclusion of these property insurance coverage lines will be closely monitored by regulators as are other lines of coverage already offered by RRGs.
As we celebrate RRGs’ successes from the last 33 years, let’s continue exploring RRGs’ potentials to better serve the insureds.
Guest blogger Christina Kindstedt is Senior Vice President of Willis’ Global Captive Practice for the Americas, leading the Willis Risk Retention Group (RRG) development and management team. She joined Willis in 2003 and is based in Burlington, VT, USA.