Risk Retention Groups: Self-Insuring Against Risk

What is a Risk Retention Group?

A risk retention group (RRG) is an insurance company that is owned and controlled by its members to provide commercial liability insurance coverage for companies and organizations with similar or related risk exposures. RRGs allow members to pool and self-insure their risks as an alternative to purchasing insurance from traditional insurance companies.

Key Features of Risk Retention Groups

Member-Owned and Controlled – RRGs are member-owned and controlled, with insureds being shareholders or policyholders rather than third-party investors. This gives members more control over underwriting, claims, and coverage.

Self-Insurance Pools – RRGs allow members to collectively retain or self-insure all or a portion of their risks. This pooling and sharing of risk can provide coverage at a lower cost.

Liability Insurance Focus – RRGs provide liability insurance to cover claims from third parties. This includes commercial general liability, professional liability, product liability and other liability coverages.

Regulated Insurance Companies – While member-owned and controlled, RRGs are regulated as insurance companies and must be licensed and comply with insurance regulations.

Risk Retention Groups vs Other Options

Compared to purchasing insurance from a traditional insurance company, RRGs allow more control over coverage and claims for members in an owner-insured arrangement.

RRGs are similar but distinct from captive insurance companies. Captives insure the risks of parent companies whereas RRGs insure liability risks across multiple unaffiliated member organizations in an industry group.

Risk purchasing groups allow small businesses to purchase insurance together but do not involve underwriting or pooling risk. Members purchase insurance as a group from an independent insurer.

Is a Risk Retention Group Right for Your Company?

Forming or joining a RRG can make sense for companies that want:

• Greater control over insurance coverage terms, costs and claims handling
• To pool risk across an industry group for greater leverage
• An alternative to the commercial insurance market for liability risks

The upfront investment and regulatory compliance required means RRGs may not suit all organizations. But for some, it enables customized liability insurance and potentially lower costs over the long run.

The Bottom Line

A risk retention group allows companies to self-insure and pool their liability exposures under an insurance model for member owners. RRGs can provide customized, affordable coverage but involve upfront investment and ongoing compliance. For many companies, however, the member control and potential long-term savings make exploring a RRG worthwhile.