01/29/2020 - Examining the Availability of Insurance for Nonprofits... - (EventID=110415)

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Wednesday, January 29, 2020 (2:00 PM) -- Examining the Availability of Insurance for Nonprofits Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems ________________ This hearing will have a single panel with the following witnesses: • J. Robert “Bob” Hunter, Director of Insurance, Consumer Federation of America • Ivoree Robinson, Vice President, Property & Casualty, ABD Insurance & Financial Services, Inc. • Chlora Lindley-Myers, Director, Missouri Department of Commerce & Insurance, on behalf of the National Association of Insurance Commissioners • Pamela E. Davis, Founder, President and CEO, Nonprofits Insurance Alliance • Jon Bergner, Assistant Vice President, Public Policy & Federal Affairs, National Association of Mutual Insurance Companies Background on Risk Retention Groups Under the McCarran Ferguson Act of 1945, the regulation of insurance markets is left primarily to the states. In limited instances, Congress has acted to narrowly preempt some aspects of state insurance regulation, including to address periods in which insurance coverage becomes unaffordable or unavailable. For example, in response to a period in which the shortage of commercial liability insurance caused many entities to struggle to find and maintain adequate coverage, Congress passed the Product Liability Risk Retention Act of 1981 (PLRRA) to authorize the creation of risk retention groups (RRGs). RRGs are alternative insurance entities made up of businesses with similar risk exposures that self-insure commercial liability risks on a group basis. Commercial liability insurance generally protects an entity from the risk of being sued or held legally liable for something such as malpractice, injury, or false advertising. Under the PLRRA, RRGs were only allowed to cover product liability insurance, but the Liability Risk Retention Act of 1986 (LRRA) subsequently amended the PLRRA to allow RRGs to cover any type of commercial liability risks, with the exception of worker’s compensation. Under the LRRA, the primary purpose of an RRG must be to assume and spread the commercial liability of its members. Only commercial enterprises (including nonprofits) and governmental bodies can be members of RRGs. RRGs must be owned by their insured companies, and all the membership of any individual RRG must have similar or related liability exposure. RRGs are limited to writing commercial liability insurance for their members, and reinsurance with respect to the liability of other RRGs. RRGs are not authorized to cover other property/casualty insurance risks. Though the RRG makeup of the insurance industry has slightly increased in the past few years, they represent a relatively small portion of the commercial liability insurance industry. The overall premiums for RRGs in 2018 was nearly $3.3 billion, around 1% of the total for commercial lines of insurance... Key Differences between Risk Retention Groups and Traditional Insurers State Guaranty Funds State Guaranty Funds All 50 states, D.C, Puerto Rico, and the U.S. Virgin Islands have guaranty funds that traditional insurance companies pay into in the event that an insurance company becomes insolvent, the proceeds of which are used to cover insurance claims. State guaranty funds were created to protect policyholders by ensuring they receive the full insurance claim due under the terms of their insurance policy even in the event of the company’s failure. Unlike traditional insurers, RRGs are specifically prohibited by the LRRA from participating in state guaranty funds. As such, if an RRG becomes insolvent and is unable to pay out claims to policyholders, its policyholders would not be protected through access to a guaranty fund and RRGs are not responsible for contributing to the guaranty fund to cover failures of other insurers... Assessing the Financial Condition of RRGs The key differences between RRGs and traditional insurers described above are important primarily because of the implications they could have for policyholders. Since 1987, there have been 505 RRG formations and 46 RRG insolvencies, an overall insolvency rate of 8.7%. More experienced RRGs, however, have a more stable track record; specifically, among RRGs with at least 10 years of experience, there have only been nine insolvencies since 1987, resulting in an insolvency rate of 1.8% for those RRGs. Among RRGs with at least 10 years of experience that serve nonprofits, there has never been a single insolvency. A 2019 AM Best Report noted a rise of RRG impairments over the 2000-2018 review period. The increasing popularity of RRGs is cited as a possible reason for the growth in impairments, but A.M. Best also identifies "unrealistic loss, operating... Hearing Page : https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406084