Risk Purchasing Groups vs. Risk Retention Groups: Key Differences Explained
Risk Purchasing Groups (RPGs) and Risk Retention Groups (RRGs) are non-traditional, liability insurance solutions that serve distinct purposes and operate under different regulatory structures. In this blog post, we’ll break down the key differences between RPGs and RRGs, to help you determine which option might be best for your needs if you are considering an alternative to commercial liability insurance.
What is a Risk Purchasing Group (RPG)?
A Risk Purchasing Group (RPG) is a collective of businesses or individuals (whose business or activities are similar or related) that come together to purchase liability insurance from an insurance company.
RPGs were established under the Liability Risk Retention Act of 1986 (LRRA) to help businesses obtain more cost-effective and tailored insurance coverage on a group basis.
Unlike a risk retention group (RRG), a risk purchasing group (RPG) is not an insurance company and its members do not underwrite their own coverage.
RPGs only purchase insurance for their members, not for the public generally.
Key Features of Risk Purchasing Groups:
✔ Group Purchasing Power – RPGs leverage collective buying power to negotiate better insurance terms and rates.
✔ Third-Party Insurer – An RPG does not provide insurance itself; instead, it purchases coverage from a licensed insurance carrier.
✔ Multi-State Access – An RPG is domiciled in a single state and can operate in multiple states by giving notice of intent to do so to the appropriate state’s insurance commissioner.
✔ No Risk Sharing – Each member holds an individual policy issued by the insurer, meaning they are not financially responsible for other members’ claims.
Risk Purchasing Groups and Non-Domiciliary State Regulation
Risk purchasing groups are generally subject to non-domiciliary State law, with some exceptions.
The LRRA allows for advantages in non-domiciliary rates, forms and coverages when they are based on the risk purchasing group’s loss and expense experience. However, the LRRA does not preempt individual state authority regarding approval of rates, forms or coverages regarding risk purchasing groups.
What is a Risk Retention Group (RRG)?
A Risk Retention Group (RRG) is a liability insurance company owned by its members, who are businesses or organizations facing similar risks.
RRGs, like RPGs, were established under LRRA, to address the challenges businesses, organizations, and governmental units face in obtaining affordable liability insurance.
RRGs only sell their policies of liability insurance to their members, not to the public.
Key Features of Risk Retention Groups:
✔ Member-Owned Insurance Company – RRGs function as their own insurance providers, meaning members also own and control the group.
✔ Liability Coverage Only – The only kind of insurance RRGs can offer is liability insurance (e.g., general liability, professional liability, product liability).
✔ Regulated by One State – An RRG is domiciled in a single state but can operate in multiple states by filing a registration in each additional state. This allows them to provide coverage across multiple states without having to comply with each individual states’ insurance laws or regulations.
✔ Long-Term Viability and Cost Savings – Since RRGs do not need to generate profits for third-party insurers, RRGs can provide more stable premiums at potentially lower prices and are able to return unused reserves to members.
Risk Retention Groups and Non-Domiciliary State Regulation
Apart from some specific exceptions, an RRG is exempt from any non-domiciliary state law, rule, or regulation that regulates the operation of an RRG or makes the operation of an RRG unlawful. The non-domiciliary state has no approval authority over rates, coverages, policy language, forms, insurance-related services, management, operation, investment activities, or loss control and claims administration. In addition, LRRA prohibits states from discriminating against RRGs.
Key Differences Between Risk Purchasing Groups and Risk Retention Groups
Which Option is Right for Your Business?
Choosing between an RPG and an RRG depends on your business’s specific liability insurance needs, risk tolerance, and industry.
A Risk Purchasing Group (RPG) is ideal if:
You want the benefits of group purchasing without sharing risk.
You prefer an established insurer to underwrite your coverage.
Your company does not want the responsibility of managing an insurance entity.
A Risk Retention Group (RRG) is ideal if:
Your group members face unique liability risks that require specialized coverage.
You want long-term availability and premium stability.
Your group operates across multiple states.
Conclusion
Risk Purchasing Groups (RPGs) and Risk Retention Groups (RRGs) offer two distinct and valuable alternatives to traditional liability insurance for companies underserved by the traditional insurance industry or unable to get the coverages they need. RPGs allow businesses to access group-negotiated liability insurance without taking on risk, while RRGs provide a captive insurance solution for companies not well served by the traditional insurance market.
Want to learn more about Risk Retention Groups and Risk Purchasing Groups? Contact NRRA for 1:1 assistance and resources.