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The What’s and Why’s of Risk Retention Groups


The What’s and Why’s of Risk Retention Groups

Since the adoption of the federal Liability Risk Retention Act in 1981, small businesses, municipalities and individuals are able to pool their resources to form collectively owned risk retention groups, or RRGs. Because RRGs exist under federal guidelines, these insurance groups are able to attract members from all states even when they are based in a single location.

By joining an RRG, members can avoid otherwise unaffordable liability insurance. In this way, risk retention groups fulfill an important need for small businesses or businesses with high risk. Read on for more information regarding these alternative, member-managed, liability insurance companies.

What Is a Risk Retention Group?

In short, an RRG is a liability insurance company that is owned by those it insures. RRG members share commonalities in the form of similar business risk exposures, offered service or products and business activities. RRGs provide liability insurance to groups such as medical professionals, legal professionals and others in a niche market.

The National Association of Insurance Commissioners reports that studies have found RRGs serve their niche markets successfully but encounter problems when it comes to consistent regulation. These organizations must adhere to the regulations of their state of domicile and improvements have been made to ensure that RRGs are in compliance. RRGs must file quarterly and annually when they operate in multiple states, much like commercial insurers.

Why Would a Risk Retention Group Benefit Its Members?

Like similar captive insurance models, RRGs draft policies that are specific to the needs of the insurance group’s membership. This provides members with lower rates and better services. It also means that members can choose the type of individuals their group will insure. This has the potential to stabilize premiums and reduce loss.

Though RRGs are owned by its members, members rely on insurance companies and professionals to manage their groups. This includes ensuring that quarterly and annual filings are submitted, regulations are upheld and underwriting services are provided.

The RRG market is strong. Despite rising insurance rates, RRGs are able to provide their members with stability and control in the midst of liability insurance industry flux.