Risk retention group leaders are urging prompt House action on legislation introduced this month that will allow RRGs to sell commercial property insurance.

However, the Independent Insurance Agents and Brokers of America is voicing concern about a provision in the bill that would allow the Treasury Department to preempt a state's oversight of a risk retention group if the agency determines that the rule is inconsistent with the RRG's home state regulation.

Besides providing authority to sell property insurance, the “Risk Retention Modernization Act of 2010″ (H.R. 4802) would mandate that RRGs create new uniform, baseline corporate governance standards.

The bill would also give the Treasury Department broad new powers to oversee RRGs, including the authority to mediate interstate disputes about RRG authority.

Specifically, under the legislation Treasury would have the authority to review disputes between risk retention groups and nondomiciliary state regulators and offer interpretations regarding the Risk Retention Act.

These would include the authority to publish minimum corporate governance standards for RRGs. Treasury rules would also have to deal with compliance, business conduct and ethics standards.

The bill would require RRGs to prepare financial statements that conform to statutory accounting principles and mandates enhanced disclosure to its member-owners.

The bill–sponsored by Rep. Dennis Moore, D-Kan., and Rep. John Campbell, R-Calif.–is similar to legislation introduced in 2008 in the House. Its supporters include the Self-Insurance Institute of America, the National Risk Retention Association, and the Risk and Insurance Management Society.

In a statement, the National Risk Retention Association lauded the legislation, noting that it has bipartisan support. “We are working together with other groups to advance this bill,” added Kim Wynkoop, chair of the NRRA board.

Kevin Doherty, chair of the Self-Insurance Institute of America's Committee on Alternative Risk Transfer, said that “SIIA has for many years supported both the availability of commercial property coverage to members of risk retention groups and the assurance of a consistent regulatory environment.”

The bill's sponsors are supporting the legislation because they believe modernizing the 1986 law creating RRGs for liability risks will add capacity to a commercial property market that has been afflicted by significant catastrophic events in recent years. The sponsors also noted that a Government Accountability Office study had foreseen the need for enhanced governance standards and regulation for RRGs.

IIABA officials cautioned that they have not yet taken a formal position on expanding the authority of risk retention groups.

But Charles Symington, senior vice president of government relations for the IIABA, noted “some concerns” with new provisions found in this year's legislation.

“Of particular concern is the creation of a 'dispute mechanism' that would allow the Treasury Department to preempt a state's oversight of a risk retention group should Treasury determine that the regulation is inconsistent with the risk retention group's home state regulation,” he said.

“We believe this new 'dispute mechanism' language could needlessly intrude on state regulation of insurance, and we look forward to working with the sponsors of the legislation and other interested parties on rolling back or modifying this newly added provision,” he added.

SIIA's director of government relations, Cliff Roberti, defended the need for the provision. He said there are many documented cases of nondomiciliary states that have unlawfully challenged or “second guessed” RRG licensing decisions by home state regulators, a clear violation of the 1986 law creating RRGs.

“Regrettably, the only recourse for an RRG to address state interference is to bring action in federal court,” he said. “Given the resources of a state compared to a small, nonprofit insurance company, RRGs are essentially left without any means for dealing with state intrusion,” he said.

The new risk retention bill “creates an expedited dispute resolution mechanism that is quick and cost-efficient,” he added.