Self- Insurance Guides
Risk Retention Groups (USA)

"A Risk Retention Group (RRG) is an insurance company as permitted by the Federal Liability Risk Retention Act. A RRG must form as liability insurance company and must be domiciled onshore under the laws of one state. RRG’s are permitted to accept all forms of liability risks from their owners with the exception of workers compensation."

Risk Retention Groups started emerging in the mid-1980's as a result of the passing of the Federal Liability Risk Retention Act of 1986. This act, which authorised the formation of Risk Retention Groups as well as Purchasing Groups, was passed in response to rising premiums and the diminishing availability of products liability coverage, both of which were having a detrimental effect upon businesses.

The purpose of a risk retention group is to enable a group of purchasers to form a mutual risk-financing organization, similar to a group captive to assume liability business.The passing of the Liability Risk Retention Act in 1986 made this possible providing that each group was licensed under the laws of at least one state. 

Risk Retention Groups today are normally exempt from the state laws that apply to private insurers however in certain states where they are not chartered they may be subject to state laws, premium taxes and participation in market plans. A Risk Retention Group differs from a Purchasing Group which is not an insurance company and therefore unable to assume risk. It is however feasible for Purchasing Groups that wish to assume risk, or self-insure, to form group captives to assume risk as reinsurers of a fronting companies.Self-insuring employee benefits allows an employer to design a health insurance policy for its employees with its own plan of benefits which can be tailored to suit the employer’s specific requirements. A third party administrator is usually appointed to process claims and to monitor the program.

Funds required to pay for the costs of the plan are set aside into a trust arrangement where income can accrue as funds are built-up in a tax efficient manner. Specific and Aggregate stop-loss is normally purchased to protect the trust.


The Federal Liability Risk Retention Act of 1986

The Federal Liability Risk Retention Act of 1986 requires that all owners of a Risk Retention Group must be insured with the Risk Retention Group and engaged in similar businesses or activities.

Preparing a Feasibility Study for a Risk Retention Group

Before forming a Risk Retention Group it is important to perform a feasibility study to determine whether or not a Risk Retention Group is a viable proposition.

Appointing Service Providers for a Risk Retention Group

Working with the right service providers is often key to a Risk Retention Group's success. It is important to ascertain that the professional services required are available and to ensure that the right ones are selected.

Filing an Application and Monitoring a Risk Retention Group

Most States use a standard NAIC registration form as adopted in 1991 but around 20 states require their own forms to be used.

The Advantages and Disadvantages of Risk Retention Groups

Establishing a Risk Retention Group is by no means appropriate for every organisation and the feasibility study will play a role in determining the viability. Prior to performing such a study companies will need to be aware of both the advantages as well as the disadvantages of establishing a risk retention group