The Big Showdown; Risk Retention vs Risk Purchasing Groups!
Let’s get ready to ruuuumble! In the right corner of the insurance ring we have Risk Retention Groups RRGs) and in the left corner we have Risk Purchasing Groups (RPGs). Both alternative risk finance options have gained momentum over the last two decades. As business owner seek more creative ways to manage risk, cover losses and save money, alternative insurance is becoming all the rave! Let’s look at each contender’s stats. Hailing from the Federal Liability Risk Retention Act of 1986, both contenders evolved due to lack of affordable liability coverage for homogeneous industry groups. However, each has some very distinct characteristics which give one an advantage over the other.
Risk Retention Groups are insurance companies owned by its insured members. There is a core group of vested owners, typically those who fund the initial startup of the company. Since it is an actual insurance carrier, the RRG retains the risk. While they must be domiciled in a state, they do not have to be licensed by every state they write coverage. Therefore, allowing RRG’s to write coverage nationally with ease. RRG’s owners retain underwriting profits that would otherwise be forfeited to commercial carriers. RRG owners have autonomy in the claims handling process and litigation selection. Risk Retention Groups are also able to offer, stable and often lower rates, broader coverage including reinsurance.
Risk Purchasing Groups on the other hand, are not insurance companies. They are groups of customers with similar businesses, who purchase liability insurance together from an insurer. The risk is retained by the insurance carrier writing the coverage, as are the underwriting profits from the book of business. RPGs are a means for its members to purchase broad coverage insurance, including loss control/risk management programs at a lower premium. There’s strength in numbers and that position drives premium down through group purchase discounts. Similar to RRGs, RPGs may be domiciled in one state with the ability to write coverage in any state without licensure.
Risk Retention Groups and Risk Purchasing Groups offer a unique opportunity to band together with other business owners in an industry and access affordable liability coverage. While both contenders offer great coverage options and flexibility, Risk Retention Groups have a few significant advantages. They take on the risk and position themselves to receive the prize. This one may be a TKO!