[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.
                                 <all>