The U.S. Government Accountability Office (“GAO”) has issued a report (GAO-12-16, the “Report”) regarding state implementation of the Liability Risk Retention Act of 1986 (“LRRA”). The LRRA permits the formation of risk retention groups (“RRG”), whereby similar businesses with similar risks can self-insure their commercial liability on a group basis. The Report is a follow-up to a report issued by the GAO in 2005 (GAO-05-536).
The Report found, among other things, that state insurance regulators disagree on the interpretation of the LRRA and, consequently, the treatment of RRGs. In particular, the LRRA only provides specific requirements for the registration of a RRG in its domiciliary state and is silent as to the regulatory authority that non-domiciliary states have to impose requirements (e.g., provision of documentation, the approval process, or imposition of additional fees) on a RRG seeking to conduct business therein. Additionally, state insurance regulators differ on the specific types of commercial liability insurance that a RRG can offer, such as contractual liability or stop-loss insurance. As a result, the Report concludes that Congress should take action by clarifying certain LRRA provisions in order to establish a more consistent regulatory environment.