FINAL BILL REPORT

HB 379

                                  C 306 L 87

BYRepresentatives Chandler, Lux, Silver, Prince, Peery, Locke, Wang, P. King and Winsley; by request of Insurance Commissioner

Regulating formation and operation of risk retention groups.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions

SYNOPSIS AS ENACTED

BACKGROUND:

Last year Congress passed the Liability Risk Retention Act which authorizes formation of risk retention groups and the purchase of insurance on a group basis.  The act limits the insurance to liability coverages, prohibits insuring workers compensation type risks, and prohibits personal liability coverage such as homeowners and private passenger auto coverage. The act exempts risk retention groups from state insurance code provisions. Commercial enterprises may collectively establish and operate liability insurance companies for the benefit of the group without regard to many state insurance laws.

However, the act does permit some limited state supervision. Apart from the act's specific provisions indicating which state insurance laws will apply to risk retention groups, the act authorizes individual states to regulate certain aspects of these groups if there is a state law specifically directed at risk retention groups and group purchasing agreements.

SUMMARY:

Risk retention groups authorized by the federal Liability Risk Retention Act of 1986 are regulated.

If a risk retention group wishes to be chartered in Washington, the group must comply with insurance code provisions governing liability insurance companies, unless the federal act specifically exempts a particular activity from regulation under state law.

A risk retention group chartered in another state that wishes to conduct business in Washington, must submit a statement to the insurance commissioner identifying the state or states in which the group is chartered and any other information that the commissioner may require to determine whether the group qualifies under the federal act.  In addition, the group must supply the commissioner with other information including financial statements and examination reports.

If the commissioner of the state in which the group is chartered does not conduct an exam of the financial condition of a risk retention group within 60 days of request by the Washington commissioner, then the Washington commissioner may conduct the exam.

All premiums paid for coverages within Washington to risk retention groups are subject to taxes in the same manner as "foreign" admitted insurers are taxed, including taxes normally paid by agents or brokers.

Risk retention groups are subject to the Unfair Claims Settlement Practices regulations and the Unfair Practices Act of the insurance code.

Any policy issued by a risk retention group must contain a notice to the insured that the group is exempt from many state insurance provisions and is not covered by the state guaranty funds.

Risk retention groups are prohibited from selling insurance to a person ineligible for such coverage, and from selling coverage when the group is in poor financial condition.

No risk retention group may do business in Washington if an insurance company is directly or indirectly an owner of the group unless the group was established by insurers for the insurers' own risks.

No group may join the state guaranty funds nor receive any benefit from the existing funds.

All groups must participate in any joint underwriting association or similar plans established in this state.

VOTES ON FINAL PASSAGE:

      House 93   0

      Senate    48     0

EFFECTIVE:May 11, 1987