United States House Representatives Dennis Moore (D-Kansas) and Deborah Pryce (R-Ohio) have recently introduced H.R. 5792, the Increasing Insurance Coverage Options for Consumers Act of 2008 (the “IICO Act”). The IICO Act will amend the two decades old Liability Risk Retention Act of 1986 (the “Act”) by allowing commercial property insurance to be written by a Risk Retention Group (“RRG”) and purchased by a Risk Purchasing Group (“RPG”).
The Act was passed in response to the decreasing availability and affordability of liability insurance. It allowed commercial entities to band together to spread their liability risk and lower their premiums by obtaining coverage from a RRG in which all insureds are also members. The Act preempted state law by allowing a RRG to be primarily regulated in a single domicile regardless of whether it provided coverage in multiple states. However, there has been growing concern by state regulators over the solvency of these entities.
To address this issue, the IICO Act provides for stronger financial and regulatory disclose requirements, uniform governance standards, strengthened safety and soundness requirements, and the establishment of a fiduciary duty for the board of a RRG. Specifically, under the new proposal, a RRG would be required to hold a written charter, form an independent audit committee and have a majority of independent directors on its board.
Additionally, the IICO Act will allow a RRG to provide commercial property insurance only if its state of domicile has adopted standards for examination authority, audits by certified public accountants, accounting practices and procedures, filings with the National Association of Insurance Commissioners, valuation of investments, safety and liquidity of investments, liabilities and reserves, actuarial opinions, capital and surplus, corrective actions, holding company systems, risk limitations, and reinsurance ceded rules.
RPGs will also be affected by the IICO Act as they would be allowed to obtain commercial property insurance for their members and enjoy a stronger exemption from the regulation of states other than their chartering state.
The proposed IICO Act will be discussed on April 16, 2008 during a hearing of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. In attendance will be Attorney Giin An of the Washington D.C. office of Edwards Angell Palmer & Dodge LLP.
To see the full text of the IICO Act, click here.