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A Risk Retention Group (RRG) is an American insurance company formed under the auspices of the Liability Risk Retention Act of 1986 (LRRA) by a group of similar businesses or activities to provide liability coverage to its members, with every insured an owner. An RRG must be licensed in at least one state or the District of Columbia and is generally welcomed in the captive domicile states, which effectively allows an RRG to operate in other states with legal exemption from compliance with the separate insurance rules of each state. RRGs are regulated in the same manner as a captive insurance company and provide coverage for entities on a national basis. All necessary registration procedures must be executed in each state in which an RRG operates.
The RRG structure enables businesses to gain increased control over their liability programs. This provides companies with the benefits of lower rates, broader and customized coverage, effective loss control/risk management programs, participation by RRG members in favorable loss experience, access to reinsurance markets and stability of coverage.
Because an RRG is a homogeneous group, exposures are more easily identified with coverage provisions better tailored to meet those exposures. As the coverage parameters are better defined, the rating structure is better determined actuarially which helps to optimize the premiums charged for the coverage being provided and to eliminate rate redundancies. Some RRGs can also opt to retain additional levels of risk by reducing or eliminating contract provisions found in standard liability insurance contracts that they deem manageable without insurance.
As part of our Captive solutions, Artex can help establish a Risk Retention Group for clients. Businesses under this structure have the power to design and manage the insurance programs that best meet the needs of their members, as well as the ability to manuscript customized policies that will more adequately address the specific coverage needs of a group's distinct membership. They also have the ability to select service providers, determine coverage levels, manage losses, direct the use of surplus funds and purchase reinsurance on a direct basis. In addition, a key advantage of an RRG is that it does not require the use of a policy-issuing carrier, which eliminates fronting costs and related collateral expenses. This savings alone is an enormous expense reduction advantage for an alternative risk program.