What Are the Benefits of a Risk Retention Group?
Businesses are always looking for alternative innovative insurance solutions to mitigate their liability risk and cover their exposures. They also want to reduce their costs, gain greater control over their insurance program and grow their assets. Solutions such as Captives insurance and Risk Retention Groups (RRGs) are available to do so.
A Risk Retention Group (RRG) is defined as an insurance company formed under the auspices of the Liability Risk Retention Act of 1986 (LRRA) by a group of like entities for the purpose of providing liability coverages to its members. Members of an Risk Retention Group must be engaged in similar businesses and have similar or related liability exposures among each other. An RRG must be licensed in at least one state or the District of Columbia and is generally welcome in the captive domicile states. As its name implies, LRRA restricts coverage provided by an Risk Retention Group to liability coverages only.
Because the insurance company is member-owned, some of the key advantages offered by RRGs relate to the control members obtain over their liability programs. This can mean lower rates, broader coverage, effective loss control/risk management programs, participation by Risk Retention Group members in favorable loss experience, access to reinsurance markets, and stability of coverage.
More specifically, when it comes to rate and coverage flexibility, an Risk Retention Group has the ability to customize policies that address the coverage needs of the membership. As they are a homogeneous group, exposures are more easily identified, enabling coverage provisions to be tailored to meet those exposures. Moreover, some RRGs will choose to retain additional levels of risk by reducing or eliminating contract provisions found in standard insurance contracts that it deems manageable without insurance. Because the coverage parameters can be better defined, it allows for a rating structure that is better actuarially determined. This helps to optimize the premiums charged for the coverage being provided and to eliminate rate redundancies.
Just as with most captive programs, an Risk Retention Group has the power to design and manage the insurance program to best meet the needs of its insured members. This includes the ability to select service providers, determine coverage levels, manage losses, direct the use of surplus and purchase reinsurance on a direct basis. A key advantage of RRGs is that they do not require the use of use a policy issuing carrier, which eliminates fronting costs and related collateral expenses. This savings alone is an enormous expense reduction advantage for an alternative risk program.
At Caitlin-Morgan, our expert consultants will assess your clients’ needs and customize a captive solution that is perfect for them, including helping to set up a Risk Retention Group. We will go over the advantages and disadvantages of each solution available with you. Please give us a call at 877.226.1027