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THE RISK
RETENTION ACT What are the advantages of risk retention groups? As insurance companies owned by
their members, some of the key advantages offered by risk retention groups
(RRGs) to their members relate to the control members obtain over their
liability programs. This control often
translates into lower rates, broader coverage, effective loss control/risk
management programs, participation by RRG members in favorable loss
experience, access to reinsurance markets, and stability of coverage,
notwithstanding insurance market cycles. How many risk retention groups are there? At the end of 2003, there were
approximately 135 risk retention groups operating in the How much premium do risk retention groups generate? According to surveys conducted by
the Risk Retention Reporter, RRG annual premium in 2003 was estimated to be
$1.2 Billion. Risk Retention Groups are
owner-controlled insurance companies authorized by the Federal Risk Retention
Act of 1986. An RRG provides Liability
Insurance to members who engage in similar or related business or activities
for all or any portion of the exposures of group members, excluding first
party coverages, such as property, workers’ compensation and personal
lines. Authorization under the federal
statute allows a group to be chartered in one state, but able to engage in
the business of insurance in all states, subject to certain specific and
limited restrictions. The Federal Act
preempts state law in many significant ways. ADVANTAGES: ∎ Avoidance of
multiple state filing and licensing
requirements; ∎ Member
control over risk and litigation management issues; ∎ Establishment
of stable market for coverage and rates; ∎ Elimination
of market residuals; ∎ Exemption
from countersignature laws for agents and brokers; ∎ No expense
for fronting fees; ∎ Unbundling of services.
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