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Products & Services | Risk Retention Groups &
Risk Purchasing Groups

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Risk Retention Group (RRG)
Risk Purchasing Group (RPG)
Difference

A Risk Retention Group (RRG) is a group self-insurance plan or group captive insurer operating under the auspices of the Risk Retention Act (RRA) of 1986 that can cover all the liability exposures; general liability, errors and omissions, directors and officers, medical malpractice, professional liability, products liability of its owners. It does not extend to workers compensation, property insurance, or to personal lines insurance, such as homeowners and personal auto insurance coverage. Risk retention groups are not subject to the individual state laws that would otherwise prohibit the formation of group captives or make it difficult to form or operate them.

The Risk Retention Act is a federal legislation passed in 1986 that authorized the formation of purchasing groups and group self-insurance programs for certain types of liability exposures. According to the Act, members of risk purchasing and risk retention groups must be engaged in similar or related businesses or activities.

As insurance companies owned by their members, some of the key advantages offered by risk retention groups (RRGs) to their members relate to the control members obtain over their liability programs. This control often translates into lower rates, broader coverage, effective loss control/risk management programs, participation by RRG members in favorable loss experience, access to reinsurance markets, and stability of coverage, notwithstanding insurance market cycles.

Advantages:

Avoidance of multiple state filing and licensing requirements.
Member control over risk and litigation management issues.
Establishment of stable market for coverage and rates.
Elimination of market residuals.
Exemption from countersignature laws for agents and brokers.
No expense for fronting fees.
Unbundling of services.

A Risk Purchasing Group (RPG) is comprised of insurance buyers who band together, typically on a national basis, to purchase their liability insurance coverage from an insurance company, including a company operating on an admitted basis, a surplus lines basis, or a risk retention group. As the name implies, the RPG serves as an insurance purchasing vehicle for its members.

For both risk retention groups (RRGs) and purchasing groups (PGs), the type of insurance coverage permitted is set forth in the Liability Risk Retention Act's (LRRA's) definition of "liability," which includes all types of third party liability, such as general liability, errors and omissions, directors and officers, medical malpractice, professional liability, products liability, and so forth. The LRRA does not extend to workers compensation, property insurance, or to personal lines insurance, such as homeowners and personal auto insurance coverage.

Purchasing groups (PGs) provide advantages for their members, their insurers, and the agents/brokers who administer the group program. For PG members, the PG offers tailor-made coverage, broader coverage terms, lower rates, loss control/risk management programs, and often provides rewards for good loss experience, such as dividends in the form of credits against next year's premium. For insurers, PGs offer the ability to achieve greater profitability. For agents and brokers, PGs offer the ability to add value to transactions and retain business.

Advantages:

Can use custom-made forms and pricing.
Control over risk-management concerns.
No capitalization requirement.
Group business more attractive to underwriter.

The primary difference between risk retention groups (RRGs) and purchasing groups (PGs) is that RRGs retain risk while PGs do not. Purchasing Groups purchase insurance from an insurer, which issues the policies and serves as the risk bearer. RRGs, as insurers, issue policies to their members and bear risk. Another key difference between the two entities is that RRGs typically require members to capitalize the company whereas PGs require no capital. Other differences derive from the way in which the two entities are regulated, both under the Liability Risk Retention Act (LRRA), as well as state laws. Another difference has to do with reinsurance, which almost all RRGs purchase.