When businesses had trouble obtaining some types of commercial insurance coverage, including liability insurance back in the 1980s, new mechanisms for transferring risk were developed including captives. A captive is special type of insurance company set up by a parent company, trade association or group of companies to insure the risks of its owner or owners. Risk Retention Groups (RRGs) were also established, which are insurance companies organized by a group of businesses or institutions in the same line of business to provide liability insurance for the owners or organizers.
Under the Liability Risk Retention Act (LRRA), RRGs must be domiciled in a state. Once licensed by its state of domicile, an RRG can insure members in all states. Because the LRRA is a federal law, it preempts state regulation, making it much easier for RRGs to operate nationally.
Why Set Up An RRG?
As insurance companies owned by their members, some of the key advantages offered by Risk Retention Groups to their members include:
- Retained profits by members/policyholders.
- Lower rates.
- Broader coverage than what is available in the regular insurance market. Members are more insights into what their exposures are and can address them accordingly allowing them to be included in the insurance coverage.
- Effective loss control/risk management programs.
- Participation by RRG members in favorable loss experience.
- Access to reinsurance markets.
- Stability of coverage.
- Shared Interests among members, which can help one another’s operations.
There are also several considerations when setting up an RRG including the fact that the experience of one member can lead to all members having to pay extra premiums. In addition, should the risk retention group fail, re-entering the commercial insurance market can be more costly with less broad coverage.
Caitlin Morgan specializes in providing alternative solutions to clients, including captives and risk retention group. We successfully manage Midwest Insurance Group, Inc., an RRG owned by its member companies. The group was formed in Indiana to provide the healthcare industry – assisted living, residential communities and nursing homes – with an alternative to rising Professional and Medical Malpractice Liability costs. Members of Midwest Insurance Group gain the benefits of stable pricing due to Indiana’s favorable regulatory environment.
To find out more about the services and programs we offer, please contact us at 877.226.1027.