The advantages of establishing a Risk Retention Group can be summarised as follows:

Retained Profits

As risk Retention Groups are owned by their members, profits are retained by policyholders rather than being passed to a commercial insurer. 

Exemption from State Laws

The Risk Retention Act allows Risk Retention Groups to be formed and to be exempt from state laws. 

Stability of Cover

There is more stability of insurance as in fluctuating market conditions, a Risk Retention Group allows members to more accurately know what their insurance costs will be and to plan accordingly. 

Scope of Cover

Coverage is often broader than in the regular insurance market. Members have superior insight into what their exposures are and can address them accordingly allowing them to be included in the insurance coverage. 

Insurable Interest

As members are at risk they will be more receptive to implementing loss control measures that will, in turn, improve losses and reduce premiums.

Shared Interests

Members often need to share information about their businesses, which can help their operations.

Obtaining Expertise

The professional services of an underwriting manager and claims staff can be hired or set up to develop expertise specifically for the Risk Retention Group's interests.

The Disadvantages of Risk Retention Groups

Potential risks can include: 

Poor Underwriting Results from other Members

The experience of one member can lead to all members having to pay extra premiums. 

Re-entry into the Traditional Insurance Marketplace

If the Risk Retention Group fails then re-entering the commercial insurance market can be more costly with less broad coverage. 

Sharing Information

Members may not want to share information about their own businesses with others.

Also in this section

The Federal Liability Risk Retention Act of 1986
Preparing a Feasibility Study for a Risk Retention Group
Appointing Service Providers for a Risk Retention Group
Filing an Application and Monitoring a Risk Retention Group