SENATE BILL REPORT

HB 379

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

Senate Hearing Date(s):March 26, 1987

Majority Report:  Do pass.

      Signed by Senators Moore, Chairman; Bender, Vice Chairman; Bottiger, Fleming, McDermott, Metcalf, von Reichbauer.

Senate Staff:Phil Sorensen (786-7470)

                  March 27, 1987

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS, MARCH 26, 1987

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.  Risk retention groups from state insurance code provisions are exempt.  Commercial enterprises may collectively establish and operate liability insurance companies for the benefit of the group without regard to most state insurance laws.

Some limited state supervision is permitted.  Specific provisions indicate which state insurance laws will apply to risk retention groups, and authorizes individual states to regulate certain aspects of these groups.

SUMMARY:

A new chapter is created in the insurance code for the purpose of regulating risk retention groups authorized by the federal "Liability Risk Retention Act of 1986."  The types of activities and groups that are subject to the act are defined.

Risk retention groups seeking to be chartered in Washington 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 it is chartered and any other information that may be required to determine qualification under the federal act.  In addition, financial statements and examination reports must be supplied.  If the commissioner of the state in which the group is chartered does not conduct an exam of the financial condition of a group within sixty 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 issue coverage prohibited by the insurance code or declared unlawful by the state supreme court.

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.  Groups that are formed to purchase insurance must comply with regulations and provisions similar to those governing risk retention groups.

Fiscal Note:      none requested

Effective Date:The bill contains an emergency clause and takes effect immediately.

Senate Committee - Testified: Scott Jarvis, Insurance Commissioner's Office