RRGs (Risk Retention Groups) - Pooling & Sharing Risk

Risk Retention Groups are member-owned business associations that are formed specifically for the purpose of pooling and sharing similar business risks. RRGs must be licensed in at least one state or the District of Columbia. Once licensed the RRG is allowed, under the Federal Liability Risk Retention Act of 1986 (which preempts contrary state laws), to underwrite the insurance risk of its members nationwide. These rights include giving preferential rates, terms and conditions to groups seeking liability coverage. This pre-exemption from state law gives the RRGs a significant strategic advantage over all other insurance carriers. It may write insurance in all 50 states without having to comply with many of the insurance laws/regulations of the states in which they operate. States may not dictate rates, coverages, forms, operations, investments, loss control, etc. States can still collect premium and surplus taxes and force compliance with unfair claims settlement practices.

The day-to-day regulation of the RRG is controlled by the state in which the RRG chooses to be intitially chartered ("Chartering State").

The following should assist in better explaining the focus and functions of RRGs:

                 1) Members of the RRG must be engaged in the same or similar businesses in regard to liability exposure.
                  2) They must be organized for the primary purpose of supplying liability insurance.
           3) They must not exclude any person or group from membership solely to provide members of the RRG a competitive advantage.
           4) They are exempt from Federal and State securities registration but must make full disclosure of all operations to their members.
                 5) They resemble and be used in conjunction with a multi-owner Captive Insurance Company or a group Self-Insurance Program.
            6) They can underwrite most tyupes of general liability policies - Errors & Omissions (E&O), Directors & Officers (D&O), and Product Liability Insurance.
            7) They are not allowed to underwrite insurance relating to Employee Benefits, Workers' Compensation, Property Insurance, and Personal Lines such as Home and Auto.
            8) Members participate in profits of the RRG and have an incentive to proactively address Risk Management to avoid claims.

Advantages to the RRG include:

              A) Avoiding multi-state filing and licensing requirements.
              B) Controlling risk and litigation issues.
              C) Establishing a stable market for coverage and rates
              D) Eliminating market residuals.
              E) Eliminating the expense of fronting fees
              F) Unbundling of services.

Disadvantage to the RRG include:
                       A) Risks are limited to liability insurance.
              B) Outside insurance business cannot be written.
              C) Members have no guarantee fund.
              D) May not be able to comply with Financial Responsibility Laws.