A new federal law designed to make it easier for doctors and other groups to obtain liability coverage has encouraged the rapid growth of new insurance carriers that may not have enough money to pay claims, according to insurance regulators around the country.

Concern over the law has been spurred in recent months by an aggressive new Georgia organization, Physicians National Risk Retention Group, which has created a stir by offering cut-rate liability coverage to many area doctors, principally in Maryland.

But insurance regulators fear Physicians National may be too good to be true. If the company fails, they say, doctors -- and the patients who sue them -- could be left holding the bag.

"We want to make sure that they have the ability to pay claims," Maryland Insurance Commissioner Edward Muhl said in an interview last week. "We have very real concerns that they {can't} do that."

Muhl recently asked the insurance department in Louisiana, the state in which Physicians National is licensed, to assess its financial condition. His Virginia counterpart, Steven Foster, last week sent a letter to the company saying that it had failed to file proper financial information with the state.

In Florida, where insurance rates are among the highest in the country, regulators have obtained a court order temporarily prohibiting the firm from selling insurance until additional information from the company can be reviewed.

These actions are the latest salvos in a rapidly escalating controversy surrounding Physicians National and a little-known federal law that has made it easier for such groups to operate without the normal scrutiny of state insurance regulators.

As part of its response to widespread problems in the cost and availability of liability insurance, Congress last October passed the Risk Retention Act, which removed barriers hindering professionals and others from forming self-insurance associations or from buying insurance on a group basis.

Generally, insurance companies must meet the regulatory requirements of each state in which they want to sell coverage. But under the new law, newly formed "risk-retention groups" only have to meet the requirements of one state, after which they can do business in each of the other states without most of the normal strictures of regulation.

As legislators hoped, the act has prompted a flurry of activity. Dozens of new groups have begun offering insurance for groups ranging from medical equipment dealers and truck operators to dry cleaners and burglar alarm manufacturers.

But the activity has revived fears among regulators, first expressed when the act was passed, that the law may be a license for abuse.

Although no risk-retention groups have gone under since the new law was passed, insurance departments report an upsurge of worrisome activity. In Florida, for instance, regulators say the state is preparing to take action against a company that has arranged insurance for 30 separate groups. And in Iowa, the insurance commissioner has summoned 21 insurers to a hearing in September to determine whether they are selling unauthorized insurance, setting the stage for a possible confrontation over how much power regulators have under the risk-retention act.

The regulators' main fear is that thinly capitalized groups will be able to meet minimal standards in one state but become insolvent in others. Unlike normal insurers, risk-retention groups are not covered by guaranty funds that protect policyholders"There is an overall concern that we don't have the same control over risk-retention groups that we do over normal insurance companies." -- insurance regulator Steven Foster in the event of failure. Thus, if they go under, the insured groups will be left bare, and if they are successfully sued the plaintiffs could be left without recourse to funds.

"There is an overall concern that we don't have the same control over risk-retention groups that we do over normal insurance companies," said Foster.

Supporters of the law, however, say the insurance commissioners have in general been too hostile to it and have overstated the danger of a new approach to the liability insurance problem. "Anything the commissioners do is suspect," said Jay Angoff, counsel to the National Insurance Consumer Organization.

Consumers "are seeing that they can get a whole lot better deal from a risk-retention group than a private insurance company," Angoff said. "There's no more likelihood a risk-retention group will be unsound than a normal carrier."

For now, the spotlight has been on Physicians National, a risk-retention group based in Marietta, Ga., and backed by such well-known figures as Dr. Sal Fascina, past president of the American College of Legal Medicine. In Maryland, Dr. Manning Alden, a former president of Medical Mutual Liability Society of Maryland, which insures more than 80 percent of doctors in the state, is serving as a consultant to the firm.

"This company offers a viable alternative," said Dr. Stephen Goldberg, a Maryland obstetrician whose four-doctor practice recently signed on with Physicians National for less than half of what it would have paid Medical Mutual.

"My group couldn't afford $450,000. I financially would have been forced out of business," Goldberg said. "I didn't have much of a choice."

Douglas Crucet, president of Physicians Reliance Association, the parent of Physicians National, said the firm is on solid financial footing, having already deposited $1.5 million in a bank to satisfy capitalization requirements in Louisiana -- a figure confirmed by insurance regulators there. More than 2,200 physicians around the country, including nearly 500 in Maryland, Virginia and the District, have paid a $1,500 one-time fee to be eligible for insurance from the company, according to Crucet.

Max Mosely, a regulator with the Louisiana insurance department, said that Physicians National has satisfied the state's solvency requirements and that its premiums were approved by the state's rate-setting commission. He acknowleged concerns that the rates may not be adequate in other states, but said the department's hands were tied by the new federal law.

"We don't like {the law} any more than any other state because of the additional work it causes us, but it is here to stay," Mosely said. Noting that about 100 groups have been launched in Louisiana, Mosely added: "I don't know how regulators are going to be able to take a close look at all of them."

Crucet said Physicians National offers insurance for 35 to 60 percent less than normal prices by cutting down on the marketing, administrative and legal costs incurred by many private insurers. Instead of paying open-ended fees to lawyers for defending doctors in lawsuits, for instance, Physicians National plans to buy legal services wholesale from law firms.

Yet it is those tactics that are attracting concern from insurance commissioners, who question whether the company is charging adequate premiums to cover future claims. In Florida, John Kummer, chief examiner of the insurance department, said regulators were initially startled by prices sharply below prevailing rates. Physicians' National was offering coverage to neurosurgeons for $55,000, for instance -- less than half the $113,000 charged by a main commercial carrier.

"They do have a lot less marketing costs and claims costs theoretically," said Kummer. "But it just didn't add up to that much difference."

Using the one power at its command under the risk-retention law, the Florida department obtained an injunction in June from a federal judge in Tallahassee, prohibiting Physicians National from writing insurance until it filed more information with the state. Insurance regulators say the company has subsequently raised its rates, and that these are currently under review.

"I'm becoming more comfortable with them. They are certainly making efforts to address our concerns," Kummer said.