Risk Retention Group (RRG)
What is Risk Retention Group (RRG)
A risk retention group (RRG) is a state-contracted insurance company that protects commercial businesses and government substances against liability risks. Risk retention groups were made by the federal Liability Risk Retention Act, a federal law made in 1986. A member of a risk retention group must be a business.
BREAKING DOWN Risk Retention Group (RRG)
Risk retention groups are dealt with uniquely in contrast to traditional insurance companies. They are exempted from being required to get a state license in each state in which they operate, and furthermore are exempt from state laws that regulate insurance. For instance, a risk retention group is exempt from being required to add to state guaranty funds, which can bring down premium costs yet can likewise increase the possibility that policyholders won't approach state funds in that frame of mind of group disappointment. All policies issued by a risk retention group are federally required to incorporate a warning demonstrating that the policy isn't regulated equivalent to standard policies.
Risk retention groups are mutual companies, implying that they are owned by the members of the group. They can be licensed as a standard mutual insurer, however they can likewise be licensed as a captive insurer, which is a company organized by a parent company explicitly to give insurance coverage to the parent company. Instances of risks protected by RRG policies incorporate medical and legal malpractice, be that as it may, property damage brought about by a flood is definitely not a covered risk. Policies can be owned by a group of people, for example, a law firm, yet they can likewise be purchased by public universities or province organizations. Members of a RRG must be participated in comparable activities or related with respect to liability exposures by uprightness of any related or common business exposure, trade, product, service, or reason.
The number of risk retention groups is probably going to increase when insurance is either inaccessible or unaffordable. While they might be well known in some business environments they actually must follow certain state regulations, including non-segregation and against misrepresentation requirements. Risk retention groups may likewise be required to furnish regulators with more information about their financials to guarantee that they are monetarily dissolvable.
Benefits of Risk Retention Groups
- Program control
- Long-term rate strength
- Tweaked Loss control and risk management practices
- Dividends for good loss experience
- Access to reinsurance markets
- Stable source of liability coverage at affordable rates
- Multi-state operations
History of Risk Retention Groups
Under the McCarran-Ferguson Act, most insurance matters are regulated at the state level, as opposed to federal. Be that as it may, in the late 1970s, numerous businesses couldn't acquire product liability coverage at any cost, and the situation required congress to act. Following several years of study, it passed the Product Liability Risk Retention Act of 1981, which permitted people or businesses with comparative or related liability exposure to form "risk retention groups" with the end goal of self-protecting. The act simply applied to product liability and completed operations insurance.
Late during the 1980s, when companies confronted comparable issues getting different types of liability insurance, Congress acted again with the entry of the Liability Risk Retention Act (LRRA), which extended the range of the original Product Liability Risk Retention Act to commercial liability insurance. Under the LRRA, a domiciliary state is accused of managing the formation and operation of a risk retention group.
The LRRA pre-empts "any state law, rule regulation, or order to the degree that such law, rule, regulation or order would make unlawful, or regulate, straightforwardly or in a roundabout way, the operation of a risk retention group." The LRRA likewise denies states from enacting regulations that victimize risk retention groups.
