What is a Risk Retention Group & RRG Insurance?

Captive insurance offers business owners significant advantages over traditional insurance coverages. Captives, referred to as self-insurance, are established and managed by the business to provide insurance protection. There are many forms of captive insurance, and each has its own unique profiles and benefits. One of these, called Risk Retention Groups (RRGs), allows business owners to pool their risks as a group of members. Although developed relatively recently, increased interest in this specialized captive insurance model means that it has been adopted across the country. RRGs serve to provide smaller business owners with cost-effective insurance coverages that were previously out of reach.

Risk Retention Groups: The Basics

Risk Retention Groups (RRGs) got their start in 1981 after the passage of the federal Product Liability Risk Retention Act. The Act was passed in response to soaring premium costs imposed by insurers, leading many businesses unable to afford or even obtain coverage in the traditional market. Initially, product liability coverage was the primary function of early RRGs. With the Liability Risk Retention Act (LRRA) of 1986, RRGs were enabled to provide all casualty coverages – except for workers’ compensation – to members.

Under the Act, members must be business owners, all companies insured by the RRG must be owners of the group itself, and all owners must be insured. RRGs are set up under state captive insurance laws or by following that state’s traditional insurance regulations. As an insurance entity, RRGs must domicile in only one state but can then do business in any other state by completing registration forms for those states. An RRG must have at least two policyholders according to federal regulations.

Traditional captive insurance companies can be expensive to set up, often putting them out of reach for smaller businesses. RRGs, on the other, allow smaller companies to pool not only their resources but also their risks. Under federal guidelines, members must be those with similar operational factors and risk profiles; examples include dental practices, architectural firms, or legal offices.

What are the Advantages of Risk Retention Groups?

Just as with other captive insurance models, RRGs enjoy specific advantages over traditional insurance solutions. Captives are characterized by their flexibility and cost-effectiveness, and RRGs are no exception. Other advantages include:

• Control over programs and claims processing.
• Customized insurance coverages and risk management strategies.
• Stability of premium rates long term.
• Increased access to reinsurance markets.
• Comprehensive and stable liability coverages for members.
• Ability to operate in multiple states without obtaining an insurance license for each state the RRG does business in.
• Return of profits to members in years with good (low) loss experiences.

Perhaps most important is the advantage that RRGs provide comprehensive insurance to their members when traditional insurance products are either unavailable or prohibitively expensive. This alone has helped propel RRGs and many other captive insurance solutions into the business forefront. Currently generating over $3 billion in annual premium volume, insurance industry analysts expect the growth of RRGs to continue in coming years.

About Caitlin Morgan Captive Services

Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (855) 975-4949.