[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5792 Introduced in House (IH)]
110th CONGRESS
2d Session
H. R. 5792
To amend the Liability Risk Retention Act of 1986 to increase insurance
competition and available coverage for consumers.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 15, 2008
Mr. Moore of Kansas (for himself, Ms. Pryce of Ohio, Mr. Campbell of
California, and Mr. Klein of Florida) introduced the following bill;
which was referred to the Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Liability Risk Retention Act of 1986 to increase insurance
competition and available coverage for consumers.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Increasing Insurance Coverage
Options for Consumers Act of 2008''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) The establishment of risk retention groups and risk
purchasing groups have provided a successful model for the sale
of insurance across State lines, reducing costs, providing
alternative mechanisms for coverage to increase competitive
options for consumers, and promoting greater premium
competition among insurers, especially in areas or for risks
where coverage is very limited and relatively unaffordable.
(2) There have been abuses of the Liability Risk Retention
Act of 1986 (15 U.S.C. 3901 et seq.) and increasing concerns by
legislators and regulators about the solvency and policyholder
control of management in many of the more recently formed risk
retention groups.
(3) There have also been inappropriate efforts by certain
States to regulate, directly or indirectly, risk retention
groups or risk purchasing groups in an extra-territorial manner
precluded by section 3 and 4 of the Liability Risk Retention
Act of 1986 (15 U.S.C. 3902 and 3903).
(4) The Liability Risk Retention Act of 1986 should be
strengthened by--
(A) requiring uniform corporate governance,
disclosure, and financial accounting standards;
(B) clarifying and strengthening required
compliance with certain State consumer protection laws;
(C) allowing risk retention groups under the new
standards to provide certain commercial property
insurance coverage;
(D) allowing risk purchasing groups to contract
more broadly for commercial property coverage as well
as coverage for all forms of liability insurance; and
(E) reinforcing a foundation of the Act that
exempts risk retention groups and risk purchasing
groups from laws of a State other than their chartering
State, except as specifically provided in the Act (15
U.S.C. 3901 et seq.).
(5) Fixing and expanding the Liability Risk Retention Act
of 1986 will reduce solvency exposure and management abuses of
risk retention groups while providing more available
competitive insurance coverage for consumers.
SEC. 3. EXPANSION OF THE LIABILITY RISK RETENTION ACT OF 1986 TO
INCLUDE PROPERTY INSURANCE.
The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.)
is amended--
(1) in section 2 (15 U.S.C. 3901)--
(A) in subsection (a)--
(i) in paragraph (4)--
(I) in subparagraph (C)(i) by
striking ``a liability'' and inserting
``an''; and
(II) in subparagraph (G)(i), by
inserting ``or commercial property''
after ``liability'';
(ii) in paragraph (5)(A), by inserting ``or
commercial property'' after ``liability'';
(iii) in paragraph (6), by striking ``and''
at the end;
(iv) in paragraph (7), by striking the
final period and inserting ``; and''; and
(v) by adding at the end the following new
paragraph:
``(8) `commercial property insurance' means commercial
lines of real or personal property insurance, including, with
regard to excess insurance, insurance against loss or damage
from any and all hazard or cause and against loss consequential
upon such loss or damage, including business interruption
insurance, other than non-contractual legal liability for such
loss or damage.''; and
(B) in subsection (b), by inserting ``, commercial
property'' after ``of liability'';
(2) in section 3 (15 U.S.C. 3902)--
(A) in subsection (a)(1)(C), by inserting ``or
commercial property'' after ``liability'';
(B) in subsection (b), by inserting ``or commercial
property'' after ``liability'' each place it appears;
and
(C) in subsection (d)(1)(B), by inserting ``or
commercial property'' after ``liability''; and
(3) in section 6(b) (15 U.S.C. 3905(b)), by inserting ``or
commercial property'' after ``liability'' each place it
appears.
SEC. 4. EXPANSION OF PURCHASING GROUPS TO INCLUDE COMMERCIAL PROPERTY
INSURANCE.
Section 4 of the Liability Risk Retention Act of 1986 (15 U.S.C.
3903) is amended--
(1) in subsection (b)--
(A) in paragraph (1), by inserting ``or commercial
property'' after ``liability''; and
(B) in paragraph (2)--
(i) by redesignating subparagraphs (B) and
(C) as subparagraphs (C) and (D), respectively;
and
(ii) by inserting after subparagraph (A)
the following new subparagraph:
``(B) commercial property insurance;''; and
(2) in subsection (d)(1)(B), by inserting ``and commercial
property'' after ``liability''.
SEC. 5. CORPORATE GOVERNANCE AND FINANCIAL ACCREDITATION STANDARDS.
(a) Risk Retention Group Definition.--Section 2(a) of the Liability
Risk Retention Act of 1986 (15 U.S.C. 3901(a)) is amended--
(1) in paragraph (4)--
(A) in subparagraph (C), by striking clauses (i)
and (ii) and inserting the following:
``(i) is chartered or licensed as an
insurance company and authorized to engage in
the business of insurance under the laws of a
State with respect to providing liability or
commercial property insurance as a risk
retention group; or
``(ii) met the definition of a risk
retention group as defined in this paragraph on
the day before the effective date of the
Increasing Insurance Coverage Options for
Consumers Act of 2007.'';
(B) in subparagraph (G)(ii), by striking ``; and''
and inserting ``;'';
(C) in subparagraph (H), by striking the period and
inserting a semicolon; and
(D) by adding at the end the following new
subparagraphs:
``(I) which--
``(i) in the case of a corporation or other
limited liability association other than a
corporation or association referred to in
subparagraph (C)(ii), is licensed or chartered
in a State that has adopted corporate
governance standards that apply to risk
retention groups licensed or authorized by the
State that are materially identical to--
``(I) the corporate governance
standards described in section 8; or
``(II) similar standards relating
to corporate governance that apply to
risk retention groups that a State
reasonably determines provide at least
as much protection as the standards
referred to in subclause (I) for the
members of such group chartered in the
State; and
``(ii) in the case of a corporation or
other limited liability association referred to
in subparagraph (C)(ii), has implemented the
requirements of the corporate governance
standards described in paragraphs (1) through
(7) of section 8 or similar standards referred
to clause (i)(II);
``(J) which, prior to providing coverage for
commercial property insurance, is licensed or chartered
in a State that has adopted requirements, as
appropriate, for examination authority, audits by
certified public accountants, accounting practices and
procedures, filings with the National Association of
Insurance Commissioners, valuation of investments,
safety and liquidity of investments, liabilities and
reserves, actuarial opinions, capital and surplus,
corrective actions, holding company systems, risk
limitations, and reinsurance ceded rules; and
``(K) which, prior to providing coverage for
commercial property insurance, is licensed or chartered
in a State that has adopted minimum requirements for
safety and soundness, including requirements that--
``(i) prohibit groups from underwriting any
single risk exposure, such as wind losses in a
coastal region or earthquake coverage on a
single fault, that could unduly impair the
group's capital, similar to such requirements
for other insurance companies or for risk
retention groups in other States;
``(ii) establish minimum standards for size
or sophistication of risk retention group
members; and
``(iii) establish solvency requirements for
risk retention groups.'';
(2) in paragraph (6), by striking ``; and'' and inserting
``;'';
(3) in paragraph (7), by striking the period and inserting
``; and''; and
(4) by adding at the end the following new paragraph:
``(8) `materially identical' means requiring or prohibiting
identical conduct with respect to corporate governance by risk
retention groups, notwithstanding that the standards adopted by
a State may differ with respect to conduct required or
prohibited with respect to other activities or entities.''.
(b) Codification of Standards.--The Liability Risk Retention Act of
1986 (15 U.S.C. 3901 et seq.) is amended by adding at the end the
following new section:
``corporate governance standards
``Sec. 8. Corporate governance standards described in this section
are standards that require the following:
``(1) Independent directors.--
``(A) In general.--The board of directors of the
risk retention group shall have a majority of
independent directors. If the risk retention group is a
reciprocal, then the attorney-in-fact would be required
to adhere to the same standards regarding independence
of operation and governance as imposed on the risk
retention group's board of directors or subscribers
advisory committee under these standards and, to the
extent permissible under State law, service providers
of a reciprocal risk retention group should contract
with the risk retention group and not the attorney-in-
fact.
``(B) Independence.--No director qualifies as
independent unless the board of directors affirmatively
determines that the director has no material
relationship with the risk retention group. Each risk
retention group shall disclose these determinations to
its domestic regulator, at least annually. For this
purpose--
``(i) any person that is a direct or
indirect owner of, or subscriber in, a risk
retention group defined in section
2(a)(4)(E)(ii) is considered to be independent;
and
``(ii) any person that is an officer,
director, or employee of a person described in
clause (i) is considered to be independent,
unless some other position of such officer,
director, or employee constitutes a material
relationship.
``(C) Material relationship.--A material
relationship between a person and a risk retention
group includes the following:
``(i) The receipt in any one 12-month
period of compensation or payment of any other
item of value by such person, a member of such
person's immediate family, or any business with
which such person is affiliated from the risk
retention group or a consultant or service
provider to the risk retention group is greater
than or equal to five percent of the risk
retention group's gross written premium for
such 12-month period or two percent of its
surplus, whichever is greater, as measured at
the end of any fiscal quarter falling in such a
12-month period. Such person or immediate
family member of such person is not independent
until one year after such person's compensation
from the risk retention group falls below the
threshold.
``(ii) A relationship with an auditor as
follows: a director or an immediate family
member of a director who is affiliated with or
employed in a professional capacity by a
present or former internal or external auditor
of the risk retention group is not independent
until one year after the end of the
affiliation, employment, or auditing
relationship.
``(iii) A relationship with a related
entity as follows: a director or immediate
family member of a director who is employed as
an executive officer of another company where
any of the risk retention group's present
executives serve on that risk retention group's
board of directors is not independent until one
year after the end of such service or the
employment relationship.
``(2) Service provider contracts.--
``(A) In general.--The term of any material service
provider contract with the risk retention group shall
not exceed five years. Any such contract, or its
renewal, shall require the approval of the majority of
the risk retention group's independent directors. The
risk retention group's board of directors or its
insured owners shall have the right to terminate any
service provider, audit, or actuarial contracts at any
time for cause after providing adequate notice as
defined in the contract. The service provider contract
is deemed material if the amount to be paid for such
contract is greater than or equal to five percent of
the risk retention group's annual gross written premium
or two percent of its surplus, whichever is greater.
``(B) Service providers.--For purposes of
subparagraph (A), service providers includes captive
managers, auditors, accountants, actuaries, investment
advisors, lawyers, managing general underwriters, or
other party responsible for underwriting, determination
of rates, collection of premium, adjusting and settling
claims, or the preparation of financial statements. In
this subparagraph, the term `lawyer' does not include
defense counsel retained by the risk retention group to
defend claims, unless the amount of fees paid to such
lawyer is greater than or equal to five percent of the
risk retention group's gross written premium for such
12-month period or two percent of its surplus,
whichever is greater, as measured at the end of any
fiscal quarter falling in such a 12-month period.
``(C) Prior approval.--Any contract with a service
provider that has a material relationship with the risk
retention group shall be submitted for prior approval
by the domestic regulator at least 30 days prior to the
effective date. No service provider contract involving
a material relationship referred to in paragraph (1)(C)
shall be entered into unless the risk retention group
has notified the Commissioner in writing of its
intention to enter into such transaction at least 30
days prior thereto and the Commissioner has not
disapproved it within such period.
``(3) Written charter.--The risk retention group's board of
directors shall have a written policy in the Bylaws that
requires the board to--
``(A) assure that all insured owners of the risk
retention group receive evidence of ownership interest;
``(B) develop a set of governance standards
applicable to the risk retention group;
``(C) oversee the evaluation of the risk retention
group's management;
``(D) review and approve all material service
provider contracts;
``(E) approve the compensation for all service
providers; and
``(F) review and approve, at least annually--
``(i) the risk retention group's goals and
objectives relevant to the compensation of
officers and service providers;
``(ii) the officers' and service providers'
performance in light of those goals and
objectives; and
``(iii) the continued engagement of the
officers and material service providers.
``(4) Audit committee.--
``(A) In general.--The risk retention group shall
have an audit committee composed of at least three
independent board members as described in paragraph
(1). A non-independent board member may participate in
the activities of the audit committee, if invited by
the members, but cannot be a member of such committee.
``(B) Written charter.--The audit committee shall
have a written charter that defines the committee's
purpose, which, at a minimum, must be to--
``(i) assist board oversight of (1) the
integrity of the financial statements, (2) the
compliance with legal and regulatory
requirements, (3) the qualifications,
independence, and performance of the
independent auditor and actuary, and (4) the
performance of the captive manager, managing
general underwriter, or other party or parties
responsible for underwriting, determination of
rates, collection of premium, adjusting or
settling claims or the preparation of financial
statements;
``(ii) discuss the annual audited financial
statements and quarterly financial statements
with management;
``(iii) discuss the annual audited
financial statements with its independent
auditor and, if advisable, discuss its
quarterly financial statements with its
independent auditor;
``(iv) discuss policies with respect to
risk assessment and risk management;
``(v) meet separately and periodically,
either directly or through a designated
representative of the committee, with
management and independent auditors;
``(vi) review with the independent auditor
any audit problems or difficulties and
management's response;
``(vii) set clear hiring policies of the
risk retention group for employees or former
employees of the independent auditor;
``(viii) require the external auditor to
rotate the lead (or coordinating) audit partner
having primary responsibility for the risk
retention group's audit and the audit partner
responsible for reviewing that audit so that
neither individual performs audit services for
more than five consecutive fiscal years; and
``(ix) report regularly to the board of
directors.
``(C) Waiver.--The domestic regulator may waive the
requirement to establish an audit committee composed of
independent directors if the risk retention group is
able to demonstrate to the domestic regulator that it
is impracticable to do so and the risk retention
group's board of directors itself is otherwise able to
accomplish the purposes of an audit committee, as
described in subparagraph (B).
``(5) Governance standards.--The risk retention group shall
adopt and disclose governance standards that include--
``(A) a process by which the directors are elected
by the insured owners;
``(B) director qualification standards;
``(C) director responsibilities;
``(D) director access to management and, as
necessary and appropriate, independent advisors;
``(E) director compensation;
``(F) director orientation and continuing
education;
``(G) management succession; and
``(H) annual performance evaluation of the board.
``(6) Business conduct and ethics.--The risk retention
group shall adopt and disclose a code of business conduct and
ethics for directors, officers, and employees and promptly
disclose to the board of directors any waivers of the code for
directors or executive officers, which shall include--
``(A) conflicts of interest;
``(B) corporate opportunities;
``(C) confidentiality;
``(D) fair dealing;
``(E) protection and proper use of risk retention
group assets;
``(F) compliance with all applicable laws, rules,
and regulations; and
``(G) requiring the reporting of any illegal or
unethical behavior that affects the operation of the
risk retention group.
``(7) Reporting non-compliance.--The captive manager or
chief executive officer of the risk retention group shall
promptly notify the domestic regulator in writing if either
becomes aware of any material non-compliance with any of the
risk retention group's governance standards.
``(8) Enforcement.--The risk retention group's domestic
regulator may take appropriate regulatory action against any
director or officer of the risk retention group or its captive
manager pursuant to its laws and regulations if the risk
retention group or captive manager violates these governance
standards.''.
SEC. 6. NO PARTICIPATION IN STATE GUARANTY FUNDS.
Section 3 of the Liability Risk Retention Act of 1986 (15 U.S.C.
3902) is amended by adding at the end the following new subsection:
``(i) Notwithstanding any other provision of this section, a risk
retention group may not participate in an insurance insolvency guaranty
association that includes participants other than risk retention
groups.''.
SEC. 7. FINANCIAL STATEMENTS.
Section 3 of the Liability Risk Retention Act of 1986 (15 U.S.C.
3902) is further amended in subsection (d)(3)--
(1) by redesignating subparagraphs (A) and (B) as clauses
(i) and (ii), respectively, and moving the margins two ems to
the right;
(2) by striking ``which statement shall be certified'' and
inserting ``which statement shall--
``(A) be certified'';
(3) in subparagraph (A)(2) (as designated by paragraphs (1)
and (2)), by striking the period and inserting a semicolon; and
(4) by adding at the end the following new subparagraphs:
``(B) be filed not later than the earlier of--
``(i) June 1, for the preceding calendar
year; and
``(ii) such time as the State in which the
risk retention group is chartered requires; and
``(C) if not prepared in conformity with statutory
accounting principles, include appropriate notes for
conversion of such statement to statutory accounting
principles.''.
SEC. 8. DISCLOSURE REQUIREMENTS.
Section 3 of the Liability Risk Retention Act of 1986 (15 U.S.C.
3902) is further amended--
(1) in subsection (a)(1)--
(A) in subparagraph (G), by striking
``jurisdiction;'' and inserting ``jurisdiction; and'';
(B) in subparagraph (H), by striking ``impaired;
and'' and inserting ``impaired.''; and
(C) by striking subparagraph (I); and
(2) by adding at the end the following new subsection:
``(j) Each risk retention group shall provide to each member of
such group, on the front page and the declaration page of each
insurance policy issued by such group, in bold 12-point or larger type,
the following notice: `This policy is issued by your risk retention
group of which you are a part owner. Your risk retention group is
primarily regulated under the laws of ____ and may not be subject to
all of the insurance laws and consumer protections of your State. If
your risk retention group fails, it may not be protected by a State
insurance insolvency guaranty fund.'. The risk retention group shall
insert the name of the State in which the risk retention group is
chartered or licensed in place of the blank space.''.
SEC. 9. FIDUCIARY DUTY.
Section 3 of the Liability Risk Retention Act of 1986 (15 U.S.C.
3902) is further amended by adding at the end the following new
subsection:
``(k) The board of directors of a risk retention group shall have a
fiduciary duty to operate in the best interests of the group.''.
SEC. 10. UNDERSCORING THE EXEMPTION.
The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.)
is amended--
(1) in section 3 (15 U.S.C. 3902)--
(A) in subsection (a), by striking ``Except as
provided'' and inserting ``Except as specifically
provided''; and
(B) in subsection (f)(1)--
(i) by inserting ``or purchasing group''
after ``risk retention group''; and
(ii) by inserting before the period ``,
except that a State may not issue a cease-and-
desist order to any risk retention group or
purchasing group not chartered or licensed in
such State, or otherwise attempt to regulate
such group directly or indirectly, except as
specifically permitted under this Act.''; and
(2) in section 4(a) (15 U.S.C. 3903(a)), by striking
``Except as provided'' and inserting ``Except as specifically
provided''.
SEC. 11. TECHNICAL CORRECTION AND AMENDMENT TO SHORT TITLE.
(a) Technical Correction.--Section 3(a)(1) of the Liability Risk
Retention Act of 1986 (15 U.S.C. 3902(a)(1)) is amended by striking
``many''and inserting ``any''.
(b) Short Title.--Section 1 of the Liability Risk Retention Act of
1986 (15 U.S.C. 3901 note) is amended by striking ``Liability Risk
Retention Act'' and inserting ``Risk Retention Act''.
SEC. 12. DELAYED EFFECTIVE DATE.
(a) In General.--Subject to subsection (b), this Act and the
amendments made by this Act shall take effect on the date of the
enactment of this Act.
(b) Exception.--Notwithstanding subsection (a), sections 3 (except
clauses (iii) through (v) of paragraph (1)(A) of section 3), 5, 7, 8,
and 9 shall take effect on the date that is 18 months after the date of
the enactment of this Act.
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