RPGs (Risk Purchasing Groups) - Insured Owned Insurance Cos.

Risk Purchasing Groups are similar to Risk Retention Groups (RRGs). RRGs are formed as insurance companies owned by their insureds. RPGs are comprised of commercial public and private insureds who join together to obtain liability coverage from admitted insurance companies, surplus lines carriers or RRGs.

The Federal Liability Risk Retention Act of 1986 - created two vehicles by which insurance buyers could have improved access to liability insurance: Risk Retention Groups (RRGs), and Risk Purchasing Groups (RPGs). With a greater focus on risk retention groups, little attention has been given to purchasing groups—the other entity enabled by the Liability Risk Retention Act.

Since 2005 the rise in PG formations has increased as a reaction to a steadily softening market. RPGs are organizations that purchase liability insurance on a group basis from an outside insurance company or from an RRG for its members. Unlike an RRG, the RPG is not an insurance company. Its members do not underwrite their own coverage. However, like RRGs, RPGs are subject to the similar tests pertaining to membership, exposures, and types of coverage offered.

RPGs will cover any aspect of an insurance policy that pertains to coverage against third party liability, including general liability, errors and omissions (E&O), and directors and officers (D&O). Property Insurance and Workers' Compensation Insurance are not included within the Legislation. For the most part, property insurance and workers compensation must be individually underwritten and issued

RPGs are corporations, and thus have a board of directors and officers. The RPG is comprised of insurance buyers - members that are exposed to similar liabilities by reason of being in a common trade or operation. They come together to purchase commercial liability insurance coverage from an insurer.

The federal law does not establish a regulatory system. The enforcement of the federal provisions and regulations are left to the states. The pre-exemption provisions of the federal law do apply to insurance related or management services utilized by the RPGs or a member of a group. This provision has been instrumental in the formation of RPG management groups and other fee-based services. The states may impose a licensing requirement on individuals and entities that provide broker services. The state cannot deny a license on the basis of residency.

Typically RPGs use a third party management company to manage its affairs, including - but not limited to - selecting prospective members, supervising insurance brokers, insurance policy renewals and termination of policy agreements of individual members, maintenance of records, maintaining a risk management program, and billing and accounting services. In addition, the RPG appoints a licensed insurance broker to obtain insurance on its behalf from an insurer.

RPGs are simlar to the "captive" insurance group, which is a corporate entity created and controlled by either a parent company, professional associate, or group of businesses for the sole purpose of providing insurance for that parent, association, or group. Captive insurance groups are an alternative to purchasing insurance under an RPG.

Members of an efficiently managed RPG will pay premiums based upon their loss experience. A member with a poor loss history will typically not be subsidized by the group, but rather that member's premium will reflect their loss history. As with the PPGs, their is an inherent incentive for Risk Management.