Risk Retention Group

Example

“The medical malpractice risk retention group was formed by 200 doctors who wanted more control over their liability insurance costs and claims management.”

Memory Tip

Think 'RRG = Really Retain and Group together' - similar businesses group together to really retain control of their insurance.

Why It Matters

Risk retention groups can provide more affordable and tailored coverage for businesses in specialized industries, especially when traditional insurance is expensive or hard to obtain. Members have direct control over underwriting, claims handling, and loss prevention programs.

Common Misconception

Many people think risk retention groups are the same as regular group insurance plans, but RRGs are actually member-owned insurance companies with significant regulatory differences. Members are both policyholders and owners, sharing in both the risks and potential profits of the operation.

In Practice

Coastal Construction RRG was formed by 50 construction companies in hurricane-prone areas where commercial general liability insurance cost $15,000 annually per company. Each company contributed $25,000 in initial capital and pays $10,000 in annual premiums to the RRG. In the first three years, total claims were $1.2 million while total premiums collected were $1.5 million. The group saved each member $5,000 annually compared to traditional insurance, and after building adequate reserves, members received a $2,000 dividend in year four. The RRG also implemented specialized safety training that reduced accidents by 30%.

Etymology

Created by the Federal Risk Retention Act of 1986 following a liability insurance crisis. The term combines 'risk retention' (keeping risk rather than transferring it) with 'group' formation principles.

Common Misspellings

Related Terms

More in insurance

Other insurance terms you should know

See Also