[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE AVAILABILITY OF
INSURANCE FOR NONPROFITS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING,
COMMUNITY DEVELOPMENT,
AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 29, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-79
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
42-794 PDF WASHINGTON : 2021
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York PETER T. KING, New York
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia BILL POSEY, Florida
AL GREEN, Texas BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio ROGER WILLIAMS, Texas
DENNY HECK, Washington FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
RASHIDA TLAIB, Michigan TED BUDD, North Carolina
KATIE PORTER, California DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
BEN McADAMS, Utah BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York LANCE GOODEN, Texas
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts WILLIAM TIMMONS, South Carolina
TULSI GABBARD, Hawaii VAN TAYLOR, Texas
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Housing, Community
Development, and Insurance
WM. LACY CLAY, Missouri, Chairman
NYDIA M. VELAZQUEZ, New York STEVE STIVERS, Ohio, Ranking
EMANUEL CLEAVER, Missouri Member
BRAD SHERMAN, California BLAINE LUETKEMEYER, Missouri
JOYCE BEATTY, Ohio BILL HUIZENGA, Michigan
AL GREEN, Texas SCOTT TIPTON, Colorado
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York DAVID KUSTOFF, Tennessee
DENNY HECK, Washington ANTHONY GONZALEZ, Ohio
JUAN VARGAS, California JOHN ROSE, Tennessee
AL LAWSON, Florida BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan LANCE GOODEN, Texas, Vice Ranking
CINDY AXNE, Iowa Member
C O N T E N T S
----------
Page
Hearing held on:
January 29, 2020............................................. 1
Appendix:
January 29, 2020............................................. 33
WITNESSES
Wednesday, January 29, 2020
Bergner, Jon, Assistant Vice President, Public Policy and Federal
Affairs, National Association of Mutual Insurance Companies
(NAMIC)........................................................ 8
Davis, Pamela E., Founder, President and CEO, Alliance of
Nonprofits for Insurance Risk Reduction Group (ANI)............ 10
Hunter, J. Robert, Director of Insurance, Consumer Federation of
America (CFA).................................................. 3
Lindley-Myers, Chlora, Director, Missouri Department of Commerce
and Insurance, on behalf of the National Association of
Insurance Commissioners (NAIC)................................. 5
Robinson, Ivoree, Vice President, ABD Insurance & Financial
Services, Inc.................................................. 6
APPENDIX
Prepared statements:
Bergner, Jon................................................. 34
Davis, Pamela E.............................................. 42
Hunter, J. Robert............................................ 66
Lindley-Myers, Chlora........................................ 75
Robinson, Ivoree............................................. 80
EXAMINING THE AVAILABILITY OF
INSURANCE FOR NONPROFITS
----------
Wednesday, January 29, 2020
U.S. House of Representatives,
Subcommittee on Housing, Community
Development, and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:02 p.m., in
room 2128, Rayburn House Office Building, Hon. Wm. Lacy Clay
[chairman of the subcommittee] presiding.
Members present: Representatives Clay, Sherman, Green,
Tlaib, Axne; Luetkemeyer, Huizenga, Tipton, Kustoff, Gonzalez
of Ohio, Rose, and Gooden.
Also present: Representatives San Nicolas, Posey, and Budd.
Chairman Clay. The Subcommittee on Housing, Community
Development, and Insurance will come to order. Without
objection, the Chair is authorized to declare a recess of the
subcommittee at any time. Also, without objection, members of
the full Financial Services Committee who are not members of
this subcommittee are authorized to participate in today's
hearing.
Today's hearing is entitled, ``Examining the Availability
of Insurance for Nonprofits.'' And I now recognize myself for 2
minutes to give an opening statement.
Again, welcome to our hearing. The Nonprofit Property
Protection Act, H.R. 4523, would allow risk retention groups,
or RRGs, to insure the property of their small and midsized
501(c)(3) nonprofit members. In addition to the liability
insurance they already provide, the bill seeks to address
concerns that the small nonprofits have very few choices and
are struggling to get access to the property insurance coverage
that they need.
At its core, this hearing is about nonprofits having the
resources that they need to do their jobs. One of these
resources is access to adequate and affordable insurance
coverage so that the nonprofits can do their jobs with peace of
mind that their valuable work has a backstop in the case of an
accident.
I believe the Nonprofit Property Protection Act is a
narrowly tailored attempt to amend the Liability Risk Retention
Act of 1986, in order to address a specific need from a
relatively small segment of the market. Research from Guy
Carpenter has demonstrated that only one admitted carrier
offers a stand-alone property and auto physical damage policy,
and only a handful of bundled policies are available to small
and midsized nonprofits. And RRGs for nonprofits cannot survive
without the availability of property and auto physical damage
insurance, but commercial insurers will not provide this to
RRGs, and RRGs are forbidden to do so by the Federal law which
governs them, the Liability Risk Retention Act.
When property is offered by the few companies that will
insure a nonprofit at all, it is only offered as part of a
package policy, including liability insurance, which members of
RRGs don't need or want. Six States have passed laws, two as
recently as 2014 and 2015, to allow nonprofits to expand
unregulated risk pools for liability and property.
I will stop there and yield to my friend from Texas, Mr.
Green.
Mr. Green. Thank you, Mr. Chairman, for yielding. And I
thank the witnesses for appearing.
Mr. Chairman, I am proud to speak on behalf of the
legislation, and I thank you for holding this hearing today so
that we may have an opportunity to vet some issues of concern
and to move the bill forward with appropriate input.
This bill is supported by some 1,600 different entities. I
have here letters from the 1,600 that I speak of, and they
range from Black Lives Matter to the RRG that has associated
with it some 133 institutions, and these are Historically Black
Colleges and Universities (HBCUs). It also is supported by the
National Human Services Assembly. This is an association of
not-for-profits.
The bill, is quite simply, this: An opportunity for these
501(c)(3)s, not (4)s, to have insurance for property such that
they can buy it from a stand-alone perspective. Currently, if
they seek to purchase such insurance, they have to purchase it
as a part of a package deal, as was indicated by the chairman.
And in this package deal, they have to purchase the liability
as well as the property insurance. This bill affords the RRGs
the opportunity to allow for the coverage of property by self-
insuring, as opposed to having to purchase it from a commercial
company.
I think it is a good piece of legislation, and I look
forward to talking to my colleagues more about it so that we
might move it forward.
Thank you, Mr. Chairman. I yield back.
Chairman Clay. Thank you, Mr. Green.
I now recognize the vice ranking member of the
subcommittee, the gentleman from Texas, Mr. Gooden, for 5
minutes for an opening statement.
Mr. Gooden. Thank you, Chairman Clay. And thank you to our
witnesses for being here today.
I would like to start by briefly stepping back and looking
at the bigger insurance picture as it relates to this hearing.
In the 1980s, the national insurance marketplace faced an
availability crisis in the commercial liability space. There
was a hard market, and Congress enacted the Liability Risk
Retention Act (LRRA), a law that created risk retention groups,
known as RRGs, and those were set up under a unique regulatory
structure that helped solve what was a serious problem at the
time. And today, they help by servicing a specific part of the
insurance spectrum.
We have a bill before us today that would allow these RRGs
that serve nonprofit organizations to offer additional types of
commercial insurance. Proponents of this, as I understand it,
argue for expanding the LRRA because an insurance availability
problem exists today. They also argue that nonprofit
organizations are unable to easily acquire property coverage
from the traditional marketplace.
And while they do provide an option to those who otherwise
have limited options, I am more concerned about some of the
potential impacts and unintended consequences that I would like
to discuss here with you all today, with the panel.
Currently, RRGs operate nationwide, but are only subject to
the regulations of the State in which they are domiciled, as
opposed to traditional admitted insurance companies, which must
abide by the same insurance laws in every State in which they
offer policies.
Questions that I will have for you today include, how would
an expansion of the law impact risk calculations and ultimately
ensure that we are providing the important regulatory
protections that Americans have come to expect within the
insurance space? Furthermore, would expanding the LRRA so RRGs
can offer commercial property insurance even be consistent with
the original intent and reasoning of Congress when RRGs were
first established?
These are just some of the questions that I hope to discuss
with you all today. I realize there are competing voices, and I
look forward to the discussion.
And I yield back to the chairman.
Chairman Clay. I thank the gentleman for yielding back.
Today, we welcome the testimony of an excellent panel of
witnesses, beginning with J. Robert ``Bob'' Hunter, director of
insurance at the Consumer Federation of America; Ivoree
Robinson, vice president, property and casualty, at ABD
Insurance and Financial Services, Inc.; and someone whom I am
very familiar with, Chlora Lindley-Myers, the director of the
Missouri Department of Commerce and Insurance, who is
testifying on behalf of the National Association of Insurance
Commissioners; Pamela E. Davis, founder, president, and CEO of
the Alliance of Nonprofits for Insurance Risk Reduction Group;
and last, but not least, Jon Bergner, assistant vice president,
public policy and Federal affairs, at the National Association
of Mutual Insurance Companies.
Welcome to you all. Let me remind you, before you begin,
that your oral testimony is limited to 5 minutes. And without
objection, your written statements will be made a part of the
record.
Mr. Hunter, you are now recognized for 5 minutes.
STATEMENT OF J. ROBERT HUNTER, DIRECTOR OF INSURANCE, CONSUMER
FEDERATION OF AMERICA (CFA)
Mr. Hunter. Thank you, Chairman Clay, Ranking Member
Gooden, and members of the subcommittee for the opportunity to
testify today. My name is Bob Hunter, and I am director of
insurance at the Consumer Federation of America (CFA). In the
past, I have been the Texas insurance commissioner, and I have
been involved in insurance consumer advocacy for 40 years,
including 15 years in the private sector, and 10 years as
Federal Insurance Administrator at HUD, which now is, of
course, FEMA.
In the mid-1970s, America first faced its first liability
crisis, and President Ford, in my view, wisely created an
interagency task force in 1975 to look into the cause and
solutions of the problem. I was on that task force. And we made
recommendations later, under President Carter, to do two
things: one, to change the annual statements of insurance
companies so we would have better data if we ever faced another
crisis like this; and two, we suggested that the product
liability line was not competitive and needed greater coverage
availability, and we proposed the creation of a Product
Liability Risk Retention Act. A bill to achieve that was filed
in 1979 and enacted in 1981.
The 1981 Act was just product liability insurance coverage.
We had another crisis in the mid-1980s, which was even worse.
Rates were going up even faster, with less availability. In the
second crisis, we had the data. We saw that the problem was the
economic cycle of the insurance industry, not an influx of
claims, and that--as president of the National Insurance
Consumer Organization, I testified all over the country, I
testified in every State in 1986 and several times here in
Congress. In reaction, the Congress, in 1986, voted to expand
the Product Liability Risk Retention Act to what it is today,
the commercial Liability Risk Retention Act, in effect.
In 2002, there was another bit of a crisis in the wake of
9/11, and we proposed, at that time, expanding the Liability
Risk Retention Act to cover all property/casualty insurance to
get over that trouble. That didn't happen.
Today, I am here to support a much narrower expansion under
H.R. 4523, that asks Congress to require those States with
insurance markets that failed to address the property insurance
need of nonprofit organizations, and to authorize only very
experienced and very stable liability RRGs to provide the
coverage.
Risk retention groups that cover the liability insurance
needs of nonprofit groups have served the nonprofit sector well
over the past 30 years. Nonprofits that also have property
insurance need to go through the private commercial market for
that coverage. However, there is significant evidence that
there is not a competitive market among private commercial
carriers offering stand-alone property coverage, and in some
States, in the wake of catastrophes, there is no market.
In 2017, a study by Guy Carpenter, as mentioned earlier,
documented this problem. There was only one company writing
stand-alone coverage, and we are told that that one company may
leave the market, which would leave no companies writing the
stand-alone coverage. Some say, well, why don't these
nonprofits buy the package policies, like the business owners'
package? The problem is that those policies don't cover what
they need in liability. One of our member companies who does
consumer advocacy was offered a policy, but it wouldn't cover
consumer advocacy, and that was the only policy they could
find.
What we need is policies that are designed for these
nonprofits, and these nonprofits deal with all kinds of tough
situations, using volunteers usually. They are into situations
like homeless situations, situations with drug abuse, sexual
abuse, all kinds of wonderful services that we really need.
They need the kind of coverage that actually fits their model,
their real risk.
It is an important Federal role in establishing this
eventuality. The bill is very safe, I think, and provides
enough protection for these consumers who, in effect, own these
RRGs, and they are insuring themselves really through these
RRGs. So, they are not going to try to cheat themselves.
And they do have strong standards for solvency in this
bill. No RRG that has existed for 10 years or more, which is
the standard in the bill, has ever gone insolvent.
Now, some have said, well, shouldn't they be covered by the
guaranty funds? And I am willing to say that CFA would support
amending the bill to allow risk retention acts to go into
guaranty funds, although I don't think it is absolutely
necessary the way the bill is drafted.
[The prepared statement of Mr. Hunter can be found on page
66 of the appendix.]
Mr. San Nicolas. [presiding]. Thank you, Mr. Hunter.
The Chair now recognizes Ms. Chlora Lindley-Myers for 5
minutes.
STATEMENT OF CHLORA LINDLEY-MYERS, DIRECTOR, MISSOURI
DEPARTMENT OF COMMERCE AND INSURANCE, ON BEHALF OF THE NATIONAL
ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)
Ms. Lindley-Myers. Thank you for the opportunity to testify
here today.
The NAIC believes that nonprofit organizations serve a
critical role in our country, and we recognize the importance
of ensuring that they have access to insurance that meets their
needs. We understand that some have raised concerns regarding
the availability of commercial property coverage for
nonprofits. They have also argued that H.R. 4523, the Nonprofit
Property Protection Act, is the appropriate mechanism for
addressing such concerns. On both accounts, we respectfully
disagree.
While the passage of the LRRA may have been viewed as
appropriate in the 1980s to address a widespread availability
crisis in the liability insurance market, no such crisis exists
today in the commercial property insurance market. Traditional
admitted carriers do provide coverage to small and medium-sized
nonprofits, albeit several offer it in the form of a full
business owner's policy that contains both liability and
property coverages. Also, if there are limited options for a
specific policyholder in the admitted markets, policyholders
have access to surplus line markets as well as the residual
market.
State insurance departments have received few, if any,
complaints from nonprofit policyholders, indicating that they
are unable to obtain the coverage that they require.
Notwithstanding any questions surrounding availability, we are
troubled by the idea of less regulated RRGs providing
commercial property coverage.
Even though RRGs may operate in multiple States, they are
only required to be licensed in one, and the regulatory
authorities of nondomiciliary States are significantly
curtailed. These limitations are significant because RRG
policyholders do not get the benefit of the oversight that
multiple sets of eyes can offer. This is particularly
concerning as only 30 percent of all RRGs write business in
their State of domicile, which means that State has limited
firsthand exposure to the RRG's conduct and policyholders.
Under H.R. 4523, an RRG already subject to weaker
regulatory requirements based thousands of miles away with no
presence in Missouri would be able to write property coverage
for Missouri policyholders, and I would have limited oversight
or ability to act to protect those policyholders should
anything happen. I couldn't even conduct a market conduct
examination to determine if they were bad actors.
Further, while it is true that all States are required to
establish a baseline level of regulatory requirements for RRGs
to obtain NAIC accreditation, those requirements are
specifically designed for the purpose of RRG regulation. They
relate to the liability lines of business that RRGs are
entitled to write, they are subject to the limitations in the
LRRA, and are not the same as the admitted market. The minimum
capital requirements are different, the types of assets that
can be used for capital are different. The accounting basis can
be different. And as a result, the threshold for intervention
can be opaque to regulators.
Historically, RRGs have had a higher rate of insolvencies.
Over the past 10 years, RRGs entered receivership at nearly 2
times the failure rate of admitted carriers. In the event of an
insolvency, RRG policyholders do not have the same protections
as the admitted market.
The LRRA prohibits RRGs from participating in the State
guaranty fund system. So unlike buying from a traditional
insurer, nonprofits have no safety net should their RRG fail.
My written testimony provides additional details regarding
options for RRGs that wish to provide property coverage to
their members, such as converting to an admitted carrier or
affiliating with one. Expansion of the LRRA, however, is not
the appropriate solution.
In conclusion, we are concerned that preempting the States
to allow RRGs to sell commercial property coverage would create
more risk for RRGs, and ultimately, their policyholders. The
limited oversight of nondomiciliary States in the RRG
regulatory framework, coupled with the lack of State-run
guaranty fund protection and increased risk of insolvencies
associated with RRGs could expose nonprofit organizations and
those who rely on them to unnecessary risk.
I thank you for this opportunity to testify today, and I
would be pleased to answer any questions you may have.
[The prepared statement of Ms. Lindley-Myers can be found
on page of 75 of the appendix.]
Mr. San Nicolas. Thank you, Director Lindley-Myers.
The Chair now recognizes Ms. Ivoree Robinson for 5 minutes.
STATEMENT OF IVOREE ROBINSON, VICE PRESIDENT, ABD INSURANCE &
FINANCIAL SERVICES, INC.
Ms. Robinson. Chairman Clay, Ranking Member Gooden, and
members of the subcommittee, I am Ivoree Robinson, vice
president of ABD Insurance and Financial Services, an insurance
broker. Thank you for the opportunity to testify today about
the difficulties that small, community-based nonprofits face
finding appropriate property/casualty insurance. In doing so, I
will describe my experience in trying to obtain coverage for
one of my clients, Black Lives Matter, and explain why I
believe risk retention groups must be able to offer property
insurance to their nonprofit members.
ABD Insurance and Financial Services is one of the fastest-
growing private insurance firms in the United States. We work
extensively directly with nonprofits to help them obtain
property/casualty insurance that is appropriate for them and
that they can afford.
Our clients serve our communities in a variety of ways.
They help those with disabilities such as cerebral palsy, Down
syndrome, and autism. They rescue thousands of pets, and
provide care for the sick and injured. They work with those
addressing global problems including climate change,
inequality, and food insecurity. While this variety and
creativity is extremely good for our communities, it can be
challenging for insurance companies to tailor affordable
insurance for them.
Even in the best and most competitive of insurance markets,
nonprofits always seem to be at a disadvantage. Out of the more
than 150 companies that we represent and work with, only about
3 percent--yes, just 3 percent--are focused exclusively on
helping nonprofits with the specialty insurance that they need
and helping them to thrive in the communities that they serve.
None of those companies provide stand-alone property that small
nonprofits need to pair with the liability insurance they
obtain from their own risk retention groups.
I began actively working with the risk retention group for
nonprofits several years ago. As with all insurance companies I
work with, I made sure that the risk retention group offered
appropriate insurance policies, had a good reputation for
fairly paying claims, and was financially strong.
Unfortunately, there are a couple of trends occurring
simultaneously in our industry right now that are making
securing affordable insurance even more difficult for small,
community-based nonprofits.
First, there is an increasing trend towards automation
within the insurance industry. While this makes good sense for
insurance companies hoping to shrink their operating margins,
it does not work well for organizations who are community-based
like nonprofit. That does not fit into their underwriting box
due to their own unique services that nonprofits offer.
In addition, despite the opponent's assertion that there is
no crisis at this time, the insurance industry right now is in
one of the most difficult markets we have seen in decades,
which means sharp increases in premiums for all policyholders
in 2020 and beyond.
The insurance markets have suffered record claims and
losses due to wildfires, hurricanes, floods, and increased
litigation around sexual abuse, and we can expect those trends
to continue. This has resulted in decreased market capacity to
provide coverage, increases in premiums, as much as 100 percent
for policyholders, and unprecedented numbers of cancellations
and nonrenewals.
In fact, today, one of the largest nonprofits insurance
companies informed brokers they are canceling coverage for all
foster care agencies, adoption, and housing-related nonprofits
at renewal this year, which could begin as soon as March for
bundled insurance products.
I would like to close with one example of why it is
extremely important that risk retention groups continue to
exist. I am an insurance broker for Black Lives Matter. My
experience in trying to find insurance for them has solidified
my support for risk retention groups and their important role,
particularly in supporting new and emerging community-based
organizations and civil justice organizations. I spent nearly a
year, and endured rejections from over 90 traditional admitted
insurance carriers and companies in my efforts to find coverage
for Black Lives Matter.
Insurance underwriters reacted to sensational headlines
rather than examining the actual operations of this
organization. Ultimately, it was the nonprofit's own risk
retention group that provided their necessary coverage.
Without insurance, organizations like this cannot obtain
financial support through fiscal sponsorship, rent facilities,
receive permits to hold rallies, raise funds for government
resources, or engage in services that individuals are willing
to provide on a volunteer basis for their nonprofit board
members.
I am proud of the industry I have chosen for my career, but
this experience made me see very clearly how not having access
to insurance can impede the important work of our community
organizations. We have found that risk retention groups, their
solution, to be an excellent one for small and midsized
community-based nonprofits.
We cannot stress strongly enough how important it is that
H.R. 4523 become law so that well-capitalized and seasoned risk
retention groups are able to provide this important property
insurance to their nonprofit members.
Thank you.
[The prepared statement of Ms. Robinson can be found on
page 80 of the appendix.]
Mr. San Nicolas. Thank you, Ms. Robinson.
The Chair now recognizes Mr. Bergner for 5 minutes.
STATEMENT OF JON BERGNER, ASSISTANT VICE PRESIDENT, PUBLIC
POLICY AND FEDERAL AFFAIRS, NATIONAL ASSOCIATION OF MUTUAL
INSURANCE COMPANIES (NAMIC)
Mr. Bergner. Thank you. And good afternoon, Mr. Chairman,
Ranking Member Gooden, and members of the subcommittee. Thank
you for the opportunity to testify here today. My name is Jon
Bergner, and I am the assistant vice president for public
policy and Federal affairs for the National Association of
Mutual Insurance Companies (NAMIC).
NAMIC membership includes more than 1,400 regional and
local mutual insurance companies on Main Streets across
America, as well as many of the country's largest national
insurers. Though not 501(c)(3)s, mutual insurance companies are
also not-for-profit organizations which exist solely for the
benefit of their policyholders, and so share a certain affinity
for those entities that are the subject of today's hearing.
In speaking on behalf of NAMIC's diverse and unique
membership, which is made up of many of the nation's smallest
insurers, we hope to provide a useful perspective for the
conversation on nonprofit insurance and risk retention group
expansion.
I want to start by saying that NAMIC members are community
leaders across America and support the work that many
501(c)(3)s do in our communities throughout the nation.
However, we do not agree that a crisis exists in the commercial
property market and believe that an expansion of the scope of
risk retention groups would be unnecessary and inappropriate.
Therefore, we are opposed to H.R. 4523, which we believe would
needlessly undermine the State-based insurance regulatory
system here in America.
In short, NAMIC opposes H.R. 4523 for four key reasons.
Number one, no national insurance availability crisis exists
that would warrant circumventing longstanding State insurance
regulations.
Number two, because no crisis exists, allowing RRGs to
offer commercial property and auto insurance would serve only
to create an unlevel regulatory playing field and a competitive
advantage for a handful of RRGs in this market.
Number three, the RRG regulatory regime is substantially
different and less rigorous, undermining consumer protections
and potentially placing 501(c)(3) policyholders at risk.
And number four, States have already created more tailored
and effective risk-transfer mechanisms and alternative
solutions for 501(c)(3)s.
Simply put, NAMIC does not see compelling evidence that
there is a national availability crisis in the commercial
property insurance market for 501(c)(3)s. There are insurance
coverages, including property coverage, available and, in some
cases, marketed directly to nonprofit organizations.
Allowing RRGs to sell the same commercial insurance
products already offered in the admitted markets simply gives
them an unfair competitive advantage over traditional insurance
companies that abide by all of the regulatory standards and
consumer protections of each State in which they operate. This
is because, in contrast to admitted carriers, risk retention
groups are allowed to operate nationwide, but they are only
substantially subject to the regulations of the State in which
they are domiciled. By definition, this means that there is
less oversight by fewer regulators.
Further, they are not required to participate in State
guaranty funds designed to protect consumers. This arrangement
was specifically designed to deal with a widely recognized
crisis in the commercial liability insurance markets in the
1980s. No such crisis exists today in the commercial property
market.
Even if one were to stipulate there was an availability
issue for nonprofits, which we do not, it does not mean that
passage of H.R. 4523 and the expansion of the RRG mandate is
the only, best, or even an appropriate remedy.
There are other mechanisms through which a nonprofit could
effectively transfer its risk. If a nonprofit has real
difficulty in finding the exact coverage it desires in the
admitted market, it can have a broker go to the surplus lines
market. In the event that an organization cannot find coverage
in either the admitted or the surplus lines market, many States
have residual market mechanisms, like Fair Access to Insurance
Requirements (FAIR) plans, to which they can go to acquire a
commercial property policy.
And finally, in the event none of that works, the State
could address any concerns about coverage availability on its
own, working through the State insurance commissioners or the
State legislatures on a tailored solution, like at least one
State has already done in this space.
NAMIC believes the issue is quite simple. If RRGs want to
offer the same products as admitted insurers, they should play
by the same rules. There was nothing novel about the structure
of RRGs when they were created. The concept of an insurer that
is owned and managed by and for the benefit of its policy-
holding members has been around since the first successful U.S.
mutual insurance company was founded by Benjamin Franklin in
1752. I would note that company is still in existence today.
Given that NAMIC's membership contains numerous smaller
insurance companies that write in multiple States for niche
markets, we would invite any RRG not satisfied with the
statutory limitations on its offerings to strongly consider
reorganizing as an admitted mutual insurance company.
As I close, I think it is important to highlight the fact
that State regulators, independent insurance agents, and the
entire primary insurance industry all agree that H.R. 4523
would undermine the State-based system of insurance regulation
and increase risk to consumers.
Again, thank you for the opportunity to speak here today,
and I look forward to answering any questions you may have.
[The prepared statement of Mr. Bergner can be found on page
34 of the appendix.]
Mr. San Nicolas. Thank you, Mr. Bergner.
The Chair now recognizes Ms. Davis for 5 minutes.
STATEMENT OF PAMELA E. DAVIS, FOUNDER, PRESIDENT AND CEO,
ALLIANCE OF NONPROFITS FOR INSURANCE RISK RETENTION GROUP (ANI)
Ms. Davis. Chairman Clay, Ranking Member Gooden, and
members of the subcommittee, thank you for the opportunity to
testify about the availability of insurance for nonprofit
organizations and to explain why the Nonprofit Property
Protection Act is critical to assure uninterrupted insurance
coverage for tens of thousands of nonprofit organizations. I am
the president, CEO, and founder of Alliance of Nonprofits for
Insurance Risk Retention Group, known as ANI, and I am
testifying on behalf of them today.
ANI insures small and midsized community-based nonprofit
organizations across the country, those that are in
neighborhoods who work with the most vulnerable among us. They
are homeless shelters and programs for those with Alzheimer's,
victims of abuse, and the developmentally disabled. They are
animal rescues, elder care services, drug and alcohol
rehabilitation centers, school arts programs, and faith-based
organizations.
Eighty percent of the member insureds have annual budgets
of less than a million dollars. These little nonprofits never
wanted to be in the insurance business, but created their own
insurance companies as risk retention groups against great odds
because commercial insurance carriers abandoned them.
And last year, ANI nonprofits' own risk retention group
experienced a 30 percent increase in applications as commercial
insurance companies once again nonrenewed policies, restricted
coverage options, and raised prices on nonprofits.
This year, we have seen the trend continuing to escalate,
and as an RRG, we have been successfully insuring these
organizations for difficult liability risks such as auto,
sexual abuse, and employment practices for decades. We also
offer free consulting and educational services, such as
employment risk management and driver training, to nonprofits
whose small budgets do not allow them to provide and purchase
these services. But our future ability to serve nonprofits is
now in question.
Commercial insurers, when they are willing to offer
insurance for small nonprofits, provide it only as a bundled
package. That is, small nonprofits must purchase the liability
and the property together, similar to a triple-play cable
package.
However, by Federal law, risk retention groups are
prohibited from offering property insurance to their members.
Only one company in the country offers a stand-alone property
insurance program appropriate for small and midsized nonprofits
that are members of a risk retention group. This program was
meant to address the market failure until other commercial
companies started to offer the product.
Several years ago, the single company offering the property
indicated that they intend to discontinue the program. We asked
insurance brokers and agents who work with nonprofits to find
other commercial insurance companies to provide the stand-alone
property insurance for their clients. They told us in no
uncertain terms that there were no appropriate policies options
available.
Hearing that, we engaged Guy Carpenter to conduct an
independent study to see whether there were insurance
department filings that we had overlooked. Surely, some other
carrier provides this coverage. Guy Carpenter's research turned
up no viable commercial options for the stand-alone property
form for small nonprofits. We have exhausted all of our options
for a market-based solution.
To provide consumer protections, the Nonprofit Property
Protection Act has minimum capital and seasoning requirements
before any risk retention group can offer property insurance.
And to make sure this bill will only correct a market failure
and not interfere with an otherwise well-functioning commercial
property market, the bill has three additional provisions.
One, risk retention groups may offer property insurance
only to their members that are 501(c)(3) nonprofit
organizations.
Two, any single nonprofit may be insured by a risk
retention group only for up to $50 million in total insured
value, because it is presumed that larger nonprofits will be
able to purchase these stand-alone coverages in the standard
market.
Three, and this last point is critically important, no risk
retention group may begin offering property insurance to its
members if there are three licensed, admitted insurance
companies offering these property coverages that nonprofits
need in a State as determined by the insurance commissioner.
Let me emphasize that point. Under the provisions of this
bill, any insurance commissioner can stop any risk retention
group from beginning to offer property insurance simply by
listing on its website three licensed, admitted companies that
write this coverage in that State. We have been asking
insurance commissioners to provide us with the names of
companies that will write this coverage for years and they have
not provided the name of a single company, nor have they
suggested language to improve the bill.
Every industry, even insurance, must make room for
necessary and prudent innovation like the Nonprofit Property
Protection Act. Congress can correct a market failure that
insurance commissioners and commercial insurance companies have
either been unable or unwilling to fix. With H.R. 4523,
nonprofits can solve this problem for themselves.
Thank you.
[The prepared statement of Ms. Davis can be found on page
42 of the appendix.]
Mr. San Nicolas. Thank you, Ms. Davis.
The Chair now recognizes the gentleman from Texas, Mr.
Green, who is also the Chair of our Subcommittee on Oversight
and Investigations, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the witnesses
for appearing as well.
Let me start with you, if I may, please, Ms. Lindley-Myers.
Ma'am, you cited an insolvency rate earlier, did you not?
Ms. Lindley-Myers. I indicated that RRGs are 2 times as
likely to fail.
Mr. Green. And in citing your insolvency rate, you did not
address those with experience of 10 years or more. Is that
correct?
Ms. Lindley-Myers. Well, the--
Mr. Green. Is that correct?
Ms. Lindley-Myers. That have 10 years or more?
Mr. Green. Yes. Is it correct that you did not address
them?
Ms. Lindley-Myers. I did not mention that at all.
Mr. Green. You did not mention it. And is it true that with
10 years or more, we have never had a single insolvency? Is
this true?
It is. And you neglected to mention it.
Is it true that if you had your way, you would eliminate
the RRGs?
Ms. Lindley-Myers. That is not true.
Mr. Green. You would keep them?
Ms. Lindley-Myers. If they would operate under State--I
would keep them if they would operate such that they would
allow--either combine themselves with an admitted carrier--
Mr. Green. Let me continue. Is it also true that you have
read the bill?
Ms. Lindley-Myers. It is.
Mr. Green. You have read the bill?
Ms. Lindley-Myers. It is.
Mr. Green. I take it, yes, you have read the bill?
Ms. Lindley-Myers. I did.
Mr. Green. Okay. In reading the bill, did you happen to
note over on page 4, line 24, the statements that indicate that
if there is no crisis, then there will be no RRG in a given
State by simply certifying that there is not a crisis?
Ms. Lindley-Myers. It indicates that if there is a crisis
and an RRG is already operating; it doesn't say that they have
to stop operating once it is determined that no crisis exists.
Mr. Green. So if the bill--if we amended the bill to
include language to accommodate you, you would then support it?
Ms. Lindley-Myers. No. Because I feel--
Mr. Green. But then, you just made the point that if there
is no crisis, you would accept the bill. And if at some point
the crisis does exist--if the crisis exists, you would accept
the bill, but if there is no crisis, then you would want to
return to a State wherein the RRG would not be allowed to do
business in the State?
Ms. Lindley-Myers. There is no crisis, and because--and if
there is an issue, as has been mentioned by the Chair when he
was giving his opening statement, apparently the nonprofits
have gone to States and said, hey, this is a problem for us in
this State. And so, therefore, we want to correct it. In
certain situations, those things--
Mr. Green. If I may, my time is quite limited. If there is
a crisis, we have one circumstance. But if there is not a
crisis, the authorities in the State only have to certify that
there are three companies that provide this type of insurance.
So, we cover the circumstance of a crisis. If there is a
crisis, then they won't operate in the State. If there isn't,
then the 501(c)(3)s can be accommodated.
Let me ask you, ma'am, the lady who represents Black Lives
Matter, Ms. Robinson, tell me about the difficulty in acquiring
insurance, please, for an entity such as Black Lives Matter.
Ms. Robinson. Sure. What it comes down to is, because they
do unique services, so not a one-size-fits-all type of
organization, the stance of the insurance companies, if they
don't feel comfortable with the risk, if they don't like any
perceived liability based on whatever they find online or
Google, whatever their own personal inferences are, they don't
offer the coverage. This is why it took me more than a year.
And Black Lives Matter is one of many organizations that
have this difficulty. As I mentioned, I work with hundreds of
nonprofits, in my experience. I would just ask anyone on this
panel if they have had direct experience in working with
nonprofits to place this coverage as opposed to just the
legislative side?
Mr. Green. Let me conclude with, Mr. Chairman, I would like
to put the 1,600 letters supporting the legislation into the
record.
And I would like to close with the bill having covered the
question of a crisis in terms of whether it exists or not. If
there is a crisis, then they operate. If not, they can't
operate in a State. And no company with 10 years of experience
or more has ever failed, and you neglected to mention that.
I yield back.
Mr. San Nicolas. The gentleman yields back.
The Chair now recognizes the gentleman from Texas, Mr.
Gooden, for 5 minutes.
Mr. Gooden. Thank you.
The reason a State guaranty fund exists, I believe, and
they are all active in all 50 States, is to protect
policyholders if an insurance company defaults on benefit
payments or becomes insolvent. Is that correct, Director
Lindley-Myers?
Ms. Lindley-Myers. That is correct.
Mr. Gooden. So can you tell me, do these risk retention
groups have access to this State guaranty fund? Do they have
access?
Ms. Lindley-Myers. They do not.
Mr. Gooden. What does that mean, moving forward? If we are
using the history of no insolvencies as a benchmark, then why
do we even need these State guaranty funds?
Ms. Lindley-Myers. The State guaranty funds exist to
protect policyholders. If an RRG fails, they are not a part of
the State guaranty fund, so, therefore, the assets of the
nonprofit would have to be used to pay claims. If a company
that is in the admitted market fails, then they have access to
the guaranty fund.
Mr. Gooden. So if the RRG wants to expand their coverage,
which I am hearing today, why wouldn't they just become an
admitted carrier? Are they being barred from that process?
Ms. Lindley-Myers. They are not being barred from that
process. And as has been mentioned here today, if they found
that there was an issue in a particular State, they have gone
to that particular State's insurance commissioner and asked
that this issue, whatever the issue may be, be taken care of in
that particular State, and that is what has happened in the
past.
Mr. Gooden. Ms. Davis, did you want to join in?
Ms. Davis. I did. Thank you very much. I wanted to talk a
little bit about the guaranty fund issue. We have always said,
as we work through this legislation, that if Congress wanted us
to be part of the guaranty funds at the election of an
insurance commissioner in a State, for the benefit of writing
the property insurance, we would be happy to do that, and we
have always said that. So, we would be happy to do that, if
that is something that you feel strongly about.
I would also like to speak a little bit about why we cannot
become admitted, if you don't mind. We did actually look into
it. We have looked into every option we can possibly imagine to
try to solve this problem before asking Congress to fix it. And
I did call an expert and suggested to him what we were planning
to do, what we were hoping to do, and honestly, he laughed at
me. He said, ``This is ridiculous, the path to being licensed/
admitted for the small amount of property you are talking about
for these little organizations just simply makes no sense.''
Nevertheless, we looked into it. But there is a specific
reason why Alliance of Nonprofits for Insurance cannot become
licensed and admitted. And the reason for that is that we are
actually a 501(c)(3) nonprofit ourselves. As an insurance
company, there is a certain law, it is a Federal law called
501(n) under the IRS Code, and we were tax-exempt under that
IRS Code. And it requires us to be organized as a nonprofit
under State laws, provisions, authorizing risk-sharing
arrangements for charitable organizations. There are only six
States that allow that, and so we could not be licensed/
admitted in every State.
Mr. Gooden. Got it. Thank you, Ms. Davis.
Mr. Bergner, did you want to add your thoughts on this
matter?
Mr. Bergner. Sure. I think we have seen in the past that
there have been several risk retention groups that have indeed
reorganized to become admitted carriers. I am not familiar with
the specifics of the Federal law that Ms. Davis was referring
to in terms of the inability to reorganize. I might be happy to
help try to amend that law, if that were the desire, to try to
streamline the process for becoming an admitted carrier and,
then, therefore playing by all the same rules.
I would just note the dynamic membership is a great
example. It sort of belies the notion that you can't be an
admitted carrier operating as a mutual in niche markets and be
small with specific risks, because that is what our members do
every day on Main Streets across America. So, I will just leave
you with that.
Mr. Gooden. Yes, Ms. Robinson, I have 30 seconds, and you
can have them all.
Ms. Robinson. I just want to add that when you talk about
the guaranty funds, that is the notion that an insurance
company or RRG goes out of business before that ever happens.
We have noted that that has never happened in history, if they
have been in business for over 10 years.
Furthermore, I come from California. You have seen the
wildfires that have occurred. In the last couple of years, the
only company that has gone out of business has been a
traditional insurance carrier out of the Camp Fire and the
Paradise Fire, and they are regulated and they are backed by
California guaranty insurance funds. So I just want to say that
I am astonished at the fact that that is the fear-based kind of
notion that we are hearing today as opposed to the realities,
which risk retention groups do not face.
Mr. San Nicolas. Thank you.
The Chair now recognizes the gentlewoman from Michigan, Ms.
Tlaib, for 5 minutes.
Ms. Tlaib. Thank you, Mr. Chairman. And thank you all so
much for being here.
I appreciate, coming from the nonprofit sector, kind of a
critical conversation of, how do we cultivate an environment
that allows so many nonprofits across the country, especially
in 13 District strong, to really in some ways supplement what
the government isn't doing enough of.
I wanted to ask Ms. Robinson, there was a study that found,
in 2017, that nonprofits have very few options when it comes to
obtaining property insurance coverage, especially small and
midsized ones. One of the things I wanted to ask is, is it just
property insurance? What else do nonprofits need insurance for?
Ms. Robinson. It is certainly not just property insurance.
They need insurance for abuse liability. They are often dealing
with vulnerable populations, such as children and the elderly.
They need coverage for directors' and officers' liability, as
they cannot form boards. A lot of people want protection in
order to get that coverage. They are the primary type of
organizations that have mass numbers of volunteers, and so they
have a unique type of insurance and risk exposure on that
front, different than the for-profit community.
Ms. Tlaib. And, Ms. Lindley-Myers, and Mr. Bergner, the
same study, I think, showed that nonprofits, particularly
smaller nonprofits, have limited access to property insurance
coverage because of bundling or something. Can you explain to
me what that is and how this--there have been some arguments
that this coverage is amply available, and I know you all have
been kind of going back and forth about this. But if my mom is
right now watching this, explain this in the simplest terms. It
is really important for people to understand in a much more
simple way, why there is some disagreement here, and what are
some of the core issues.
Mr. Bergner. Sure. Thank you, Congresswoman. I appreciate
the question. Yes, there has been a lot of discussion around
bundling. This is something that insurance companies will
typically do in the marketplace because it is more efficient
and cost-effective to bundle two or more different--
Ms. Tlaib. Do they make more money doing it that way or--
Mr. Bergner. No. It typically provides savings to the
consumer. This is something that the consumers in the
marketplace have desired. And so, you will see it quite
frequently if you turn on the TV, ``Bundle your home and
auto.'' So, that is in the personal line side.
In this case, the conversation is about bundling your
liability and your property. This is what consumers typically
are saying they want, and so that is what many in the market
tend to offer.
I would just note, there is kind of an attack on bundling,
that I at least have heard throughout this debate, which is a
little odd considering the purpose of H.R. 4523 is to allow for
bundling by risk retention groups, so--
Ms. Lindley-Myers. And I would agree with Mr. Bergner. But
I also want to draw your attention to, at least the executive
summary indicates that bundling is preferred because it is
efficient and it allows the carrier or it allows, in this case,
a nonprofit to put all of that together. I have heard
conversation about monoline; we just need property, we just
need property. But the efficiency is in bundling, and that is
the rationale for that.
Ms. Tlaib. I'm sorry, I will get to you. Mr. Hunter, do you
have something to add?
Mr. Hunter. I think the problem with bundling is the
liability part of the bundle. The business owner property--
policy has liability in it, but it is not the kind of liability
that is needed by the nonprofits.
Ms. Tlaib. Is it less coverage?
Mr. Hunter. It is liability coverage bundled with property,
which is efficient for most people. But if the liability part
doesn't offer what you need, you don't want to bundle. You want
to go to your risk retention group, your RRG, which gives you
exactly what you need, which covers the kinds of risks you have
when you are dealing with volunteers and when you are dealing
with the elderly and you are dealing with sexually abused
people and really difficult risks. You have to have tailored
coverage, so the RRG is often the tailored coverage. They would
have to give that up if they went to a bundle. They don't want
to give it up.
Ms. Tlaib. Got it.
Mr. Hunter. They want to add property insurance, and that
is what the bill does.
Ms. Tlaib. Not a lot of options there.
Go ahead, Ms. Robinson?
Ms. Robinson. Yes. I just want to add that when you talk
about a bundled program as discussed here, those insurance
companies have one idea of what they want to write, very black
and white, in this little underwriting box of the type of risk
they want to insure. So if there is organization, as I was
discussing earlier, say, like Black Lives Matter, where they
don't want the liability, they are not offering any coverage
because what they are approved for is this one bundled option,
further limiting the options that nonprofits have. And again, I
see this, I am on the ground, I work with nonprofits for a
living. I am talking to them every day and I do it for--
Ms. Tlaib. Thank you.
I can see my Vice Chair has learned a technique from
Chairwoman Waters with the clicking. So I heard you, yes. Thank
you so much. I yield back.
Mr. San Nicolas. The gentleman from Tennessee, Mr. Kustoff,
is recognized for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman.
And I don't know if anybody has stated this, but I would
like to recognize our former colleague, Mr. Walsh, who is here
today in the audience. It is good to see him, and it was good
to visit with him a week or so ago. And also to Ms. Lindley-
Myers, Commissioner, I appreciate you, I remember you from your
days in Tennessee and your public service, and we certainly do
appreciate it. And I appreciate all of the witnesses being here
today.
Mr. Bergner, if I could refer to everybody's opening
statements, and as it relates to data, can you give us any
evidence, if you will, is there any conclusivity as to whether
there is data to support an assertion that nonprofits have
difficulty finding commercial property insurance at affordable
rates?
Mr. Bergner. Sure. Thank you, Congressman. I can at least
address just a couple of points in that space.
The first is, according to the Urban Institute's nonprofit
center, there is upwards of--I think the latest numbers were
1.56 million nonprofits, 78 percent of which are 501(c)(3)s,
which would put that number over 1.2 million. We generally, in
not seeing a crisis--and I would echo or acknowledge my
colleague, Director Lindley-Myers', point that the in-State
insurance departments are not really seeing folks coming to
them and expressing a crisis of availability.
And so with that kind of number and at the overall level--
granted, not all of them may need property insurance, conceded,
stipulated--but one would think this would be a lot more
obvious than it is.
And then the second point, I know there is a lot of
discussion surrounding the Guy Carpenter study, such as it is,
to sort of demonstrate that there is no availability. I can't
really comment on kind of an assessment on that. The only thing
that, to my knowledge, has ever been released is a 2-page
document summarizing a survey that was done. And without any of
the assumptions or search parameters or underlying data, I
wouldn't feel comfortable being able to rely on that to change
Federal statute.
So, generally speaking, we don't think there is a lot of--
the words you use--``conclusive evidence'' to suggest there is
a crisis.
Mr. Kustoff. Do you have any concern--as it relates to the
bill that we are talking about and that is being considered--
about the bill's regulatory approach and whether it could
ultimately increase policyholders' risk exposure?
Mr. Bergner. We do. And in my opening statement, I sort of
raised the issue of, by definition, being substantially
regulated only by your State of domicile means less oversight
by fewer regulators. That is just inherent in the regulatory
regime. So I think our membership would say this is a false
choice. We don't have to choose between consumer protection and
availability; we can have both. We have had it for 200 years,
with many of our companies.
Mr. Kustoff. Thank you. And, Director Lindley-Myers, if I
could, with you, with your time in Tennessee as the deputy
commissioner, do you have any thoughts about whether a State
like Tennessee could face risks not understood by, say, the
insurance regulator in Vermont, if this were enacted?
Ms. Lindley-Myers. I would say that having an RRG that is
domiciled in Tennessee, I have no control in Missouri, because
I am a nondomiciliary State. So any State that is the
nondomiciliary State would have problems monitoring that RRG,
knowing what is happening. We can't do market conduct exams. We
don't know their financials. And in looking at a report from
Risk Retention Reporter, when you look at the 10- to 15-year
range, according to that, there were 8 that were insolvent. One
was 15 years or more. And so, what you are looking at is the
ability of that risk retention group to operate and try to
operate in some other jurisdiction that they know nothing
about.
Mr. Kustoff. Thank you very much.
My time has expired, so I will yield back. Thank you to all
the witnesses for appearing today.
Mr. San Nicolas. The Chair recognizes the gentleman from
Tennessee, Mr. Rose, for 5 minutes.
Mr. Rose. Thank you, Vice Chair San Nicolas, and Vice
Ranking Member Gooden.
I ask unanimous consent to enter into the record a letter
from the Coalition Organized for the Future of Insurance
Regulation, expressing opposition to H.R. 4523, the Nonprofit
Property Protection Act.
Mr. San Nicolas. Without objection, it is so ordered.
Mr. Rose. Nonprofit organizations are often the lifeblood
of the communities in which they serve. But the issue at hand
here today really boils down to expanding risk retention groups
and necessarily expanding the Federal Government's role in
regulating insurance markets at the expense of our State-
regulated regime.
Yes, in rare instances, Congress has acted to address
insurance crises, but that has been when the size and scope of
a problem rendered State-based solutions infeasible. One of
these rare instances was, as we have heard expressed already,
the creation of risk retention groups in 1981 in response to
the problems in the liability insurance market. And we can know
the scope of Congress' intent when it created these risk
retention groups by reading the accompanying committee report.
Risk retention groups were not required to participate in
insurance insolvency guaranty funds because risk retention
groups are not full-fledged, multiline insurance companies, but
rather, limited operations providing coverage only to member
companies and only for a narrow group of coverages. You have a
lot of entities that started out with a very narrow purview,
and then they want to get beyond that narrow purview.
Ms. Lindley-Myers, does H.R. 4523 allow risk retention
groups to combine commercial property and liability insurance
similar to what admitted insurers would do?
Ms. Lindley-Myers. Yes, they do, but generally speaking, if
there is an issue as far as a risk retention group, at least as
it relates to Missouri, and certainly in my time when I was in
Tennessee, you are able to get it from the admitted market. If
you can't get it there, we usually go to the surplus lines
market. If you can't get it there, there is usually a residual
market in which we can kind of go and get coverages for.
So that is why I staunchly believe that there isn't that
kind of an issue because there are other services that are out
there that go to the surplus lines--Uber is one--that goes to
the surplus lines market. It is not the same as taxi cabs or
whatever, and so they actually have a marketplace to go to.
Mr. Rose. In your opinion, would this expand RRGs beyond
what Congress originally intended when they were first created?
Ms. Lindley-Myers. In my opinion, yes.
Mr. Rose. After speaking with officials in Tennessee about
risk retention groups in general, I have to admit I am
concerned about opening RRGs up further, and our State
officials share those concerns. The fact is not only have our
State officials not heard any concerns from nonprofits
regarding the availability of commercial property insurance but
they are reevaluating at a policy level whether or not more
RRGs should be allowed in the first place, and they are very
concerned about the lack of consumer protections for RRGs
compared to admitted insurers.
In Tennessee, two of the seven RRGs operating in the State
are under enhanced supervision because they haven't worked out
well.
Mr. Bergner and Ms. Lindley-Myers, do you know of any State
in which commercial property coverage is unavailable to
nonprofits?
Mr. Bergner. Not to my knowledge, no.
Ms. Lindley-Myers. No.
Mr. Rose. Are commercial insurers abandoning these
nonprofit markets?
Mr. Bergner. Not to my knowledge, no.
Ms. Lindley-Myers. As it relates to Missouri, no.
Mr. Rose. Ms. Lindley-Myers, is it true that if this crisis
did exist in a certain State, then State regulators could step
in to reform how State admitted insurers sell both property and
liability coverage and make these products more accessible?
Ms. Lindley-Myers. That is correct.
Mr. Rose. In the NAIC's comment letter that I mentioned
earlier, it is mentioned that the criteria to demonstrate
coverage liability is elusory. What does the NAIC mean by that?
Ms. Lindley-Myers. In each State, what we are looking at is
that is why the RRGs might be problematic. Each State has its
own requirements and that is what admitted carriers follow and
those requirements allow for consumer protections. It allows
for--especially if an admitted carrier or a surplus line
carrier is operating in more than one jurisdiction--multiple
eyes to look at that and assess.
Mr. Rose. Thank you. My time has expired.
I yield back.
Mr. San Nicolas. The Chair recognizes the gentleman from
Missouri, Mr. Luetkemeyer, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Welcome, Ms. Lindley-Myers. It's good to see you again, a
fellow Missourian.
I spent 30-plus years as an insurance agent, so I have been
in the business. I was in the business for a long time. My son
has an agency, and so I am kind of aware of some of the issues
you are talking about here.
It kind of concerns me a little bit by the way we are
leading the discussion here from the standpoint that, we have a
group that--when I was an agent, we tried to find places for
nonprofits in my trade area. I tried to do this as well. So I
understand your problem, and I am not against risk retention
groups.
But I think for a good business practice here, for a good
company to exist, it takes sound underwriting, it takes
adequate capital, and you need to have a reinsurance program.
Do most of these RRGs or all of them have reinsurance?
Mr. Bergner?
Mr. Bergner. I don't have any specific information on that.
Mr. Luetkemeyer. Ms. Davis?
Ms. Davis. Yes, absolutely, we have extensive reinsurance,
just--
Mr. Luetkemeyer. All of them you are aware of have
reinsurance?
Ms. Davis. All of them that I am aware of have reinsurance,
absolutely, and many, many of them are AM Best rated as well.
Mr. Luetkemeyer. Okay. Ms. Lindley-Myers, does everybody in
Missouri have reinsurance?
Ms. Lindley-Myers. To my knowledge, if there is an RRG that
is operating within the State, that is not Missouri-based, they
may or may not have reinsurance.
Mr. Luetkemeyer. Okay.
Ms. Lindley-Myers. It depends on the agency.
Mr. Luetkemeyer. Okay. As a regulator, how often do you go
in and look at the RRGs? Do you have oversight over them?
Ms. Lindley-Myers. I have oversight over those that are
domiciled in Missouri.
Mr. Luetkemeyer. Domiciled in Missouri. Okay.
How often do you examine them?
Ms. Lindley-Myers. Generally, it is on a 5-year cycle.
Mr. Luetkemeyer. A 5-year cycle.
Do they submit annual reports to you? Do you go over annual
reports? If you see something that is out of line, can that
trigger an examination?
Ms. Lindley-Myers. That is correct.
Mr. Luetkemeyer. What kind of capital problems do you see
or have you seen in some of these RRGs, or have you seen any at
all?
Ms. Lindley-Myers. I am going say that I haven't seen any
in the almost 3 years that I have been there, no.
Mr. Luetkemeyer. When they have a rate increase, do they
apply to you to approve their rate increase?
Ms. Lindley-Myers. They do.
Mr. Luetkemeyer. What is your concern as the regulator with
regards to the marijuana situation where a lot of these
insurance companies now--and I am sure that Mr. Bergner can
attest to this, too. This is a burgeoning problem. It is going
to have to be underwritten correctly and going to have to be
rated correctly and is going to be a really big problem in the
future with rate increases for all insurance companies, not
just RRGs, but across-the-board.
But I am sure RRGs are going to feel it just as much. If
you are a nonprofit and you are squeezing dollars, all of a
sudden, this is going to really impact, I think, an RRG.
What is your opinion, Ms. Lindley-Myers?
Ms. Lindley-Myers. I would agree. It is a concern.
We in Missouri just started licensing agencies for
marijuana in various parts of the State and we are having--as
you know, I am also in charge of the financial institutions,
which include credit unions and banks. A lot of them don't want
to do it. There is some reticence in trying to provide such
coverage, doctors giving people prescriptions for it. There are
issues. As you know, I am over the professional registration as
well. They are very concerned about doing so.
And so, if you are an RRG and you are doing that sort of
stuff in Missouri, I am keeping a watch on that, but I have no
idea what the laws may be like in Vermont or California or some
other place, and that is why if you are the non-domiciliary
State, you should be taking a huge interest in RRGs.
Mr. Luetkemeyer. This is a concern to me because I don't--I
am concerned that if you wind up with a lot of claims, are we
adequately capitalized? Do you have adequate--most of them are
not apparently in the guaranty fund.
Ms. Lindley-Myers. Correct.
Mr. Luetkemeyer. And then we need to make sure that
reinsurance will be able to pick up the company in case it
struggles.
Mr. Bergner, what are your thoughts?
Mr. Bergner. You raise a very interesting, emerging issue
for the industry. Like most things, I think the private
admitted market will adjust to these things. But I don't think
that market will adjust until we resolve the conflict between
State and Federal law.
Mr. Luetkemeyer. My concern with this whole thing is that
if the RRGs want to go down this road, they are going to have
to understand that they are going to have to play by a
different set of rules than they are playing with right now,
because you are getting into a whole different realm of
different kinds of insurance.
There are different kinds. This is liability and property
and casualty is--that is apples and oranges, and you have to
have expertise in this. Otherwise, there is exposure there
which, if you don't have that expertise, you are going to be in
a big world of trouble. So, with that, thank you very much for
being here today.
And I yield back.
Mr. San Nicolas. The Chair recognizes the gentleman from
Ohio, Mr. Gonzalez, for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman, for holding
this hearing, and thank you to the witnesses for your
participation today.
Like a lot of folks on my side of the aisle, I believe in
the State-based regulatory framework. I think that has served
our country very well. It has certainly served my State of Ohio
incredibly well, where we have some great insurance companies--
Westfield, Nationwide, Progressive--headquartered either in my
district or nearby.
And to me, the only time it really makes sense for the
Federal Government to be intervening is when there is a clear
market failure, like we have seen with TRIA or with flood
insurance. I will tell you anecdotally we called--I don't know
how many--we called a handful of nonprofits who would
supposedly have this issue. We called the State organization
that many belong to, asking specifically whether there was a
hole in the market or whether they had been hearing from their
membership about the issue that we are here to discuss today.
And I will tell you that nobody said they saw an issue,
certainly not one that rises to the level of a market failure
that would suggest that the Federal Government should take a
look at it.
So, as we know and have heard today, Congress created risk
retention groups back in the 1980s to address what at the time
was a crisis in the commercial liability insurance market,
where some organizations at the time were unable to obtain
adequate liability insurance because of the specific nature of
their risk profile, and I think fulfilling that original
purpose is fine, but again, if RRGs want to expand beyond this
scope, in my mind, they would become admitted insurers with all
of the consumer protections that affords.
It seems ironic that the proponents of the legislation who
claim that it is about making a product cheaper and more
available to customers are willing to bypass the capital and
other regulatory requirements of admitted insurers designed to
protect consumers.
Mr. Bergner, am I incorrect here? I would imagine anything
would be cheaper if the entity providing the product had an
advantage over its competitors in the form of less regulation?
Mr. Bergner. So, no, I would say you are not incorrect
here. We have seen some studies that look into this, but the
pricing benefits for risk retention groups flow directly from a
relaxed regulatory regime. In an insurance space, it is not
possible to make a risk cheaper. To insure a risk, it what it
is, right?
Mr. Gonzalez of Ohio. That is right.
Mr. Bergner. So the benefits flow--academics have looked at
it and suggested something along the lines of 26 percent
reduction in cost directly from this different regulatory
regime.
Mr. Gonzalez of Ohio. Yes, which makes sense.
Ms. Lindley-Myers, in your testimony you said that risk
retention groups are prohibited from participating in State
guaranty funds. What does this mean for policyholders, should
an RRG go insolvent?
Ms. Lindley-Myers. If an RRG goes insolvent, the
policyholders of that RRG have to look to the RRG for their
claim payment, and if there is no money there, they don't get
it paid. At least with the State guaranty fund, there are some
funds that are set up to pay the claims.
Mr. Gonzalez of Ohio. Thank you.
Do you have any data on whether or not RRGs are more prone
to insolvency compared to admitted insurers? Anybody on that?
Director Lindley-Myers?
Ms. Lindley-Myers. I guess I can say at least for in 2019,
the State of Nevada had to shut down a transportation RRG, as
well as a medical professional liability RRG. They both were
placed in receivership in 2019, and the transportation one was
the 8th largest RRG in 2017, with a reported premium of $66.7
million.
Mr. Gonzalez of Ohio. Wow. That is awfully telling.
And Mr. Bergner, in your testimony you state that
ultimately, if there is an interest among RRGs in expanding
into other admitted line markets, there is an option that some
have already utilized which avoided an unfair and unlevel
playing field while ensuring customers are protected.
Can you discuss further why you believe it is better for
consumers and for RRGs to reorganize as traditionally admitted
insurance companies?
Mr. Bergner. Certainly, and I think the conversation has
been ongoing today at this hearing about--and I think
Congressman Luetkemeyer made the point specifically. These
risks are different, and it is important for the folks who are
offering the same products to be playing by the same rules, and
ultimately, if that is not the case, you have what creates a
competitive advantage that could theoretically lead to adverse
election concerns, obviously even broader concerns, things of
this nature.
So, the thesis of my testimony here today is very simple:
The same products should play by the same rules.
Mr. Gonzalez of Ohio. Thank you.
And with that, I yield back.
Chairman Clay. The gentleman from Ohio yields back.
I now recognize the gentleman from Guam, Mr. San Nicolas.
Mr. San Nicolas. Thank you, Mr. Chairman.
I yield the balance of my time to my colleague, Mr. Green.
Mr. Green. Thank you for yielding.
And thank you, Mr. Chairman, as well.
Let's start with Mr. Bergner. Sir, you have indicated that
you do not have these RRGs in your State, supporting entities
in your State. Is that correct?
Mr. Bergner. We actually do have risk retention group
members in our membership, yes.
Mr. Green. Yes. You have--
Mr. Bergner. We do.
Mr. Green. --approximately 40 in your State, including the
Big Brothers and Big Sisters.
Ms. Davis, let me ask you now, with reference to the
insolvency, you wanted to give a response. Would you kindly do
so, please?
Ms. Davis. Yes. Thank you very much.
Just speaking about the regulation of risk retention groups
generally, I think there has been misrepresentation, because we
have exactly the same capital standards to maintain solvency
that traditionally licensed and admitted insurance companies
do. There is no difference. I am reading from the NAIC website
right now. ``The NAIC accreditation program under that, the
regulation of multi-State RRGs is similar to the regulation of
commercial insurers.''
We have to comply with quarterly and annual requirements
imposed on property and casual companies, including financial
statements, management discussion and analysis, risk-based
capital, auditing statements, actuarial opinions, and I could
go on and on. We also have risk-focused examinations. We have
additional governance standards.
There have been many, many, many things that the NAIC has
done over the last 10 years to make sure that the regulation of
risk retention groups and the required capital is consistent
across all States and the same for risk retention groups as for
commercial insurance companies.
And I am surprised to hear the representative from NAIC not
take credit for all the work that the NAIC has done to make
sure that there is uniform regulation, and the other States
that are not domiciled States have every opportunity, if they
don't like the operation of a risk retention group in their
State, they can ask for an examination by the domicile State.
If the domicile State doesn't do that, they can actually do
the examination themselves and they can shut down that risk
retention group in their State by taking them to court.
So the regulation is very, very similar, and the capital
standards are the same.
Mr. Green. Let me move to Ms. Lindley-Myers again, please.
You indicated that you don't have any RRGs in your State.
Is that correct?
Ms. Lindley-Myers. That indicate that there is a crisis.
There are RRGs in the State.
Mr. Green. Yes, you are right, but that is not what you
said earlier. As a matter of fact, you have been doing business
with RRGs in your State, some 213 different 501(c)(3)s.
Here is where we are. Currently, there is one company that
offers the service that the RRGs would need. One. But the bill
allows for certification by a given State that there is no
crisis. The bill then allows for the RRG to cease and desist or
not work in that State but, if it makes you comfortable, I will
be more than willing to amend the bill to accommodate you in
this area to make it such that if there is an RRG functioning
in the State, then it would have to exit the State, but I don't
think that is the problem, because it appears to me that the
large insurance companies would rather see no RRGs.
Let me ask you, if I may, Mr. Bergner, have you any
experience with insuring these small 501(c)(3)s?
Mr. Bergner. No, sir.
Mr. Green. At all?
Mr. Bergner. Personally?
Mr. Green. Yes, sir. Any experience?
Mr. Bergner. No.
Mr. Green. And, Ms. Lindley-Myers, do you have any
experience?
Ms. Lindley-Myers. With insuring them? No, I am a State
regulator. So, I don't insure them.
Mr. Green. Okay. Now, let's go to Ms. Robinson. Do you have
any experience?
Ms. Robinson. Yes, I have been doing this for 15 years.
Mr. Green. And in your experience, given you have
experience, are there difficulties in getting the insurance,
getting coverage?
Ms. Robinson. There are absolutely difficulties, and I
heard the examples cited here today that there have been some
risk retention groups who struggled. I want to state that this
narrow expansion of this law is for nonprofits, which is what
we are talking about here today, so not other groups but
nonprofits. So, it is difficult--
Mr. Green. You are the person who has had the experience.
Ms. Robinson. Yes.
Mr. Green. The others are giving us, at best, what someone
else has told them. We call that hearsay.
Ms. Robinson. Yes.
Mr. Green. Finally, if I may, Mr. Chairman, I just want to
ask one additional question.
Is there any reason why an RRG should not move into this
line of business, other than you think that there is no crisis?
I yield back the balance of my time.
Chairman Clay. The witnesses may answer, if they choose to
do so.
Ms. Davis, you may answer.
Ms. Davis. I can begin. Actually, having insured for 30
years the liability insurance for nonprofits and, in
California, we insure also the property through a different
liability mechanism, we insure property and liability in
California and we have insured liability for a very long time.
It is much more difficult to insure this long tail liability.
We have sexual abuse cases that might come 40 years after the
fact.
The fact that little nonprofits have survived and being
relegated to only insure the liability, that is the difficult
line of business. And I have also insured property. And so I
have much experience with that, and it is a much more
predictable line to do, especially for little nonprofits in the
type of property that they have. We are not high risk.
Chairman Clay. Thank you for your response.
Ms. Lindley-Myers?
Ms. Lindley-Myers. Yes. I just wanted to make sure that it
is understood that it is the non-domiciliary State of these
RRGs that has no view on what is going on with these RRGs that
are capitalized in another State, and that it leads to less
consumer protection, which is what my job is and I have been
doing--I have been in regulation for 38 years.
I have seen what has been out there, and I have not
encountered one nonprofit that has come into any of the States
I have been in, from Connecticut, Missouri, Kentucky,
Tennessee, and back though Missouri again that has said, ``I
can't find any coverage.''
Chairman Clay. Thank you for that response.
I now recognize the gentleman from California. Mr. Sherman,
who is also the Chair of our Subcommittee on Investor
Protection, Entrepreneurship, and Capital Markets, for 5
minutes.
Mr. Sherman. As the gentleman from Ohio pointed out, we
have a system of State-based regulation of insurance. I think
that has worked well. It was tested in the 2008 catastrophe to
our economy. Most of the opposition to this bill, as far as I
can see, is the fear of departing from that concept of State
regulation. Mr. Bergner, and I will also address this to Ms.
Davis, I understand that in the State that Ms. Davis and I
share, California, they have already taken steps to provide a
mechanism so that nonprofits can acquire commercial property
coverage. Why can't other States simply do what California did
so that we don't have to be here?
Mr. Bergner. Thank you, Congressman. It is a good question
and, when we talk about this, we talk about kind of a cascade
of options for 501(c)(3)s.
So in seeking to obtain coverage somehow through the
admitted market, whether it is directly from primary carriers,
having RRGs do fronting arrangements with other admitted
carriers to figure out how to sell products where they need to,
and then from there, the surplus lines market we talked about a
little bit.
Mr. Sherman. I am going to cut you short and go to Ms.
Davis.
Ms. Davis. Yes.
Mr. Sherman. You have talked to me about this bill and its
concept for a long time. California solved the problem. What is
the matter with these other 49 States?
Ms. Davis. The reason that it works in California is
because California is so geographically spread, and there are
so many nonprofits that we actually have enough nonprofits
there to pool together, but I don't think there is--there is
maybe one other State where this would make sense. It would be
irresponsible for smaller States to try to do this with just
the nonprofits in the State.
Mr. Sherman. So it shouldn't be limited just to a small
State or two?
Ms. Davis. It has to be--
Mr. Sherman. It has to be multi-State.
Ms. Davis. Yes.
Mr. Sherman. But you could very well have the States do
this without the Federal Government?
Ms. Davis. It would not work.
Mr. Sherman. Okay. In our State, we have 90-some-thousand
nonprofits, and 20,000 of them have insurance through these
risk retention groups. Are the others able to get coverage
elsewhere, or what is happening in California?
Ms. Davis. We have always said that there are other limited
options for nonprofits for package coverage. We are talking
about the absence of standalone property insurance. We cannot
be the only carrier for nonprofits in the country, and we have
no intention of being that.
I will tell you that across the country, we now insure in
the States we are in, about 7 percent of the nonprofits, and
you say that might not be a very large share. In California, it
is actually 20 percent, but Berkshire Hathaway insures 6\1/2\
percent of their market. We are a very important part of this
market. Most insurance companies don't insure more than that.
Mr. Sherman. You point out that these risk retention groups
face the same kinds of regulation that you would if you are a
mutual insurance company, but you are not regulated by every
State in which you do business, and I understand that. If you
were going to be a mutual, it sounds like that is the one
advantage you have and the cost of being regulated in every
State you do business could be burdensome.
On the other hand I see that chart right in front of us,
saying 35 percent of the RRGs here are in Vermont, and I don't
think that is where 35 percent of the business is.
My concern is that Wyoming could have a, ``hear no evil,
see no evil'' approach to regulation. Somebody could be
domiciled there and then do business in my State.
I am going to address this to Director Lindley-Myers. What
do we do to not make these groups subject to registration in
all 50 States, but to have to register in those States where
they do a tremendous amount of business or a substantial--over
half or over a third of their business?
Ms. Lindley-Myers. The issue with the bill as presented is
that the non-domiciliary State doesn't have the look-see of
what's going on with that particular--
Mr. Sherman. And that is what I am addressing. If you had
the look-see, but not because they have one policy in your
State but because a third of their business was in your State,
would that provide enough State regulation to these
organizations?
Ms. Lindley-Myers. If they are going to abide by the State
regulation within my State, absolutely.
Chairman Clay. The gentleman's time has expired.
Mr. Sherman. Can Ms. Davis give a quick response?
Chairman Clay. We will get to Ms. Davis. Thank you.
Mr. Sherman. Okay.
Chairman Clay. Thank you.
I now recognize myself for 5 minutes.
Ms. Robinson and Ms. Davis, a Guy Carpenter study from 2017
found that nonprofits had very few options when it comes to
obtaining property insurance coverage, especially small and
midsized nonprofits. Can you help us understand why it is
harder for nonprofits as compared to other businesses to obtain
the insurance coverage that they need?
We will start with Ms. Robinson.
Ms. Robinson. Sure. And I want to start by--I don't want to
discount the fact that there are some nonprofits, more the
vanilla, very easy risk, who do obtain insurance and who do
have options.
The nonprofits that we are representing and speaking for
here today are those who are doing the hard work--homeless
shelters, domestic violence shelters, foster care, vulnerable
populations, the elderly, the mentally ill--the harder work
that we all hear don't do for a living. Those are who we are
representing today.
So the reason why it is harder for that subgroup of
nonprofits to obtain coverage is because with these bundled
programs, they have to do the liability and the property
together. They are not looking at it as a separate risk. So if
they say, we don't want to be subjected to, for example, in a
homeless shelter, the mentally ill or some sort of claim
arising out of someone who might have a mental breakdown, then,
no, sorry, we can't do any of it. We won't do the property.
The reality is they want a very black-and-white, only the
vanilla risk, the easier risk to insure and, but for having
this other risk, which is the option of the risk retention
group, they are struggling, and I encourage the folks here
today opposing this bill to get on the phone with the
organizations who are on the ground, who are being subjected to
the hard market, and to these challenges specifically.
Chairman Clay. Thank you for that response.
Ms. Davis, they do provide a unique form of services which
require probably some type of unique insurance coverage to help
them?
Ms. Davis. Yes. Absolutely.
And the property insurance is just the part that we, our
members, can't get access to because it is available only as a
bundled package, as we say, but the liability doesn't always
work for them, and I have given many examples.
And I would like to just say that there are organizations
that have come to us recently. Anne Grady Services of Holland,
Ohio, actually could not find any coverage. They have been
operating since 1982. We were their only option. They have 400
community members who work for them. They are a large
organization. Nobody would insure them.
The Children's Shelter of San Antonio, Texas, could not get
anything because they were insuring foster family agency
organizations.
Sun Ministries in Minnesota came to us. No one else would
insure them because they work in the inner cities.
MountainTrue, an environmental organization in North
Carolina, said they had been canceled twice, and they were so
relieved they could finally find coverage with us.
And then, finally, Mid-Delta Community Services in
southeast Arkansas had an increase of $200,000 from their
insurer and they could not come up with any additional money.
Their insurance broker went to 7 other carriers and got turned
down. He could not find anybody to cover them.
This nonprofit then advertised in the newspaper because
they were desperate for anybody to insure them, and their
insurance broker found us at the last minute. They provide Head
Start to 7 counties in their community, and we were the only
ones that would insure them.
Chairman Clay. And that is all about essential services
that our entire community depends on.
Ms. Davis, risk retention groups currently make up a
relatively small portion of the commercial liability insurance
market, with only 1 percent of the total premiums. If H.R. 4523
were to become law, how much do you think risk retention groups
would grow? How many more would there be?
Ms. Davis. I actually think that there are not many more
risk retention groups that would grow, but I think the measure
is the impact this would have on the nonprofit sector. So let's
look at the fact that it is not 1 percent of the market, but
for us, right now, we insure 7 percent of the market. In fact,
we actually insure 13 percent of the nonprofit organizations in
Missouri. So, there must be more of a problem there than the
commissioner is aware of. We insure a very large portion of the
nonprofits in Missouri.
So I think that the difference will be the impact on the
nonprofit organizations. The insurance industry is not going to
feel the impact of this, but the nonprofit organizations are
going to be able to do their services.
Chairman Clay. I thank you all for your responses.
And I would hope that when this hearing is concluded, the
two sides could get together and find some middle ground on
this issue. Help us here. Help us with this process of making
sausage.
At this time, I will recognize the gentleman from Florida,
Mr. Posey, for 5 minutes.
Mr. Posey. Mr. Bergner, it has been said that allowing risk
retention groups to offer property coverage to nonprofits means
that the traditional insurance companies will face competition
from risk retention groups. I like competition, but please
explain how this might create unfair competitive disadvantages
to traditional carriers and the impacts of those disadvantages.
I know this is similar to another question. I am just looking
for some more specifics.
Mr. Bergner. Sure. At the end of the day, we have heard a
lot of discussion about, it is a different regulatory regime
but not----it is equivalent in some way. The fact is, it is not
an equivalent regulatory regime, and if it were--there has to
be a reason there is staunch opposition to becoming an admitted
carrier, right? So, there is a reason that regulatory regime is
more preferable to operate under.
And some of the provisions of H.R. 4523, for example, that
seek to address some of the potential regulatory concerns, we
don't think necessarily get there. When a non-domiciliary
State, per Director Lindley-Myers, wants to take a look at
something or doesn't get the cooperation from the domiciled
State's regulator, it has to take them to court, and it is
legally questionable in many cases whether LRRA would allow for
that court to find in favor of the State of domicile.
Mr. Posey. Okay. As you know, Congress created risk
retention groups and shielded them from State regulation in all
States where they offer coverage to address a perceived crisis
that there was when commercial firms had difficulty obtaining
product liability coverage. In this attempt to expand the role
of risk retention groups to property coverage for nonprofits,
there appears to be no such crisis. Can you tell us about the
availability currently and if, in fact, we are facing a
``crisis?''
Mr. Bergner. Sure. Thank you. We don't believe we are
facing a crisis, and speaking to specifics of anecdotes, I
can't do that without more knowledge about specific
circumstances, but to offer my own anecdotal story about
speaking to independent insurance agents whom I would note are
also opposed to this legislation, they seem to have a lot of
conversations with their membership and they have not reported
any similar crisis when they go out into the market. They say
sometimes it is difficult to find, but we can find it for them.
I would also note that the admitted market is just one of
the options for 501(c)(3)s. There is the surplus lines market.
There are residual risk market mechanisms like FAIR Plans in
many States. I did a cursory Google search of five of them in
preparation for this hearing and found commercial property
standalone coverage through these residual market mechanisms.
So, there are options that would suggest--
Mr. Posey. Okay. I have another question for you. Then, I
want to go to Ms. Davis.
I have heard from an RRG that there is simply no way that
they could restructure as an admitted carrier because they
simply wouldn't be able to offer their products to their
clients at reasonable prices but, as I understand it, your
membership has a number of smaller carriers selling policies to
diverse clientele many times for niche markets. How is that
working for them?
Mr. Bergner. Come on in, the water is warm. Our membership
has been doing this successfully for, in most cases, over 100
years, and there are folks who write for niche markets
exclusively for houses of worship and related ministries these
organizations do in all 50 States.
So, there are plenty of examples of companies that have
figured out how to do this successfully to the benefit of their
policyholders across the country.
Mr. Posey. Okay. Ms. Davis, did you want to comment?
Ms. Davis. Yes, I did. First of all, we have a special
condition. We cannot become a licensed admitted carrier because
we are a 501(n) organization under Federal law, and it requires
us to be organized as a nonprofit under State law provisions
authorizing risk-sharing arrangements for charitable
organizations, not to be a licensed insurance company. So we
would be bankrupt if we had--if we were able to do that.
However, I wanted to point out that this is a crisis and
you are going to be hearing about it, and if you don't believe
me, you will hear about it in the future. I have a statement
here from Peter Persuitti. He is the managing director of
Gallagher, the nonprofit practice at Gallagher. He has
written--and this will be published very soon. He says,
``Gallagher believes an insurance crisis is now for many
nonprofits.'' They are a large broker. This is not a one-size-
fits-all reaction to pricing in terms and the market is not
hardening consistently. Certain geographic areas like the
Northeast, Southeast, and Texas are experienced reduced limits
as much as 40 percent rate increases and even nonrenewals.
I have another email about a conversation with a broker
just today who indicated that the largest insurer of package
coverage for nonprofit organizations in the country has said
that they will be nonrenewing their foster care, their
adoption, and all of their residential business.
Chairman Clay. Thank you. The gentleman from Florida's time
has expired.
The gentleman from North Carolina, Mr. Budd, is recognized
for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman.
Mr. Bergner, again, thank you for your time, and I thank
each of you for being here.
Is there any real evidence that a high percentage of
nonprofits across the country that are uninsured or are
shutting down are failing because of the high cost of
insurance?
Mr. Bergner. We have not seen any compelling evidence to
suggest that is the case.
Mr. Budd. Do you think that this is perhaps just a way for
a less regulated entity to sell a product at a cheaper price?
Mr. Bergner. That would be the result of the pursuit of
this particular remedy in H.R. 4523, yes.
Mr. Budd. So that really wouldn't be a very level playing
field then, would it?
Mr. Bergner. No.
Mr. Budd. Let's talk about McCarran-Ferguson for a second,
which is jeopardized by this bill being considered.
This is taken from the NAIC website, ``The McCarran-
Ferguson Act declared that the continued regulation and
taxation by the several States of the businesses of insurance
is in the public interest, and its silence on the part of the
Congress should not be construed to impose any barrier to the
regulation or taxation of such businesses by the several
States.''
It affirmed from then on that, ``No act of Congress shall
be construed to invalidate, impair, or supersede any law
enacted by any State for the purpose of regulating the business
of insurance.''
So in my view, if there was a crisis, then State regulators
could step in to reform how State-admitted insurers sell both
property and liability coverage and they could make these
products even more accessible. So we should not create a
nationwide loophole to allow these risk retention groups to do
something that is best handled at the State level, and that
would also jeopardize the State system of insurance, which is,
by the way, the gold standard of the world.
Mr. Bergner, much has been said today about a Guy Carpenter
study taken over 3 months in the summer of 2017 which looked at
Insurances Service Office (ISO) filings, concerning the
availability of standalone or monoline policies coverage of
commercial property and auto coverage.
What I don't think has been talked about nearly as much as
it should be is the fact that the folks asking for this study
to be performed did so in search of the answer that they
received. Just like H.R. 4523, in my mind, this question was a
solution in search of a problem.
Mr. Bergner, would you agree with my assertion here?
Mr. Bergner. As I mentioned before, it is hard for me to
offer a real assessment of this study in that there has only
been a two-page document that was released with sort of the
conclusions. I would admit I found some of the language in that
document oddly specific, and so I would want to dig in a little
bit to the search parameters of this survey, to understand the
underlying assumptions and the data that was produced. If the
language that was used was of a type used by 501(c)(3)
organizations, I don't understand exactly what that means or
how you would define a search by that. And so, I would want to
understand a little better before I would be eager to rely on
that as the basis for changing Federal statute.
And, regardless, the survey does not discuss, I think,
perhaps a more interesting question that could be asked along
the lines of, how are the other 1.2 million 501(c)(3)s
transferring their risks successfully today in the market?
This doesn't address that or any of the various options
that one might have outside of monoline coverage in an admitted
market.
Mr. Budd. Very good.
Mr. Chairman, I yield back the remainder of my time.
Chairman Clay. I thank the gentleman for yielding back.
And I would like to thank all of our witnesses for your
testimony today.
As I mentioned earlier, I would love to see both sides
leave this hearing and come up with a working document to
present to this committee, because I have a feeling that this
issue is not going to go away.
Hopefully, we can find middle ground on the two sides and
realize that this is an important issue, and we do need to take
care of our nonprofit community. So, I would hope that you
could get with the House sponsor and find a way forward.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 3:45 p.m., the hearing was adjourned.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]