Risk Retention Groups - The importance of having uniform regulaory standards

A report by the GAO has said that Risk Retention Groups would benefit from uniform regulatory standards and ensuring that insureds are stakeholders in them. Stating that RRG's have had a "small but important effect in increasing the availability and affordability of commercial insurance for certain groups" the report said that more RRG's had been formed in 2002-2004 than in the previous 15 years. However the report went on to say that most formations had been in States that offered captive charters which meant that they were not subject to the same baseline reporting standards as normal insurers. Because not all RRG's use the same accounting standards some regulators may have difficulty determining the financial condition of some RRG's. Whilst the Liability Risk Retention Act (LRRA) does not explicitly require members of RRG to contribute to the capital base of a RRG, the GAO report states that this could be a contributing factor to the recent failure of several large RRG's which have been set up by third party entrepreneurs with managers promoting their own interests as opposed to those of their insured's. The report also went on to say that disclosure wordings should more explicitly describe the consequences of not having state guaranty fund protection and that minimum governance requirements, similar to those provided by the Investment Company Act of 1940, should be established to avoid conflicts and to protect the interests of insureds.