The Federal Liability Risk Retention Act of 1986

The Federal Liability Risk Retention Act of 1986 requires that each group must be licensed in at least one state but that once this is accomplished it may accept liability risks in all states.

Key Features Of The Federal Liability Risk Retention Act of 1986

The Federal Liability Risk Retention Act of 1986 requires that each group must be licensed in at least one state but that once this is accomplished it may accept liability risks in all states.

An important feature of the 1986 Act was to give members protection from the prohibitions against anti-trust but provided only that groups restricted their activities to the management of their own participants' liability exposures.

Under the Act, Risk Retention Groups are also exempted from participation in state guaranty funds which reduces premium costs, however in the event of failure policyholders have no financial protection.

Risk Purchasing Groups

The 1986 Act also permitted the formation of risk purchasing groups. Unlike Risk Retention Groups these organisations do not assume risk but purely act as purchasing cooperatives to achieve savings in the commercial insurance market. 

The law does, however, require that they have common exposures and types of business and providing these criteria are met, insurers offering coverage are exempt from most state laws requiring the filing of policy forms and rates.

Also in this section

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
The Advantages and Disadvantages of Risk Retention Groups