Risk Retention Groups

What Does Risk Retention Groups Mean?

Risk-retention groups (RRGs) are a specific type of insurance company established under the Federal Liability Risk Retention Act. They allow members to write all types of liability insurance, with the exceptions of workers’ compensation, property insurance, and personal lines policies.

Insuranceopedia Explains Risk Retention Groups

Risk-retention groups differ from traditional insurance companies in that they are exempt from obtaining state licenses and from state laws that regulate insurance in the states where they operate. Additionally, an RRG functions as a mutual insurance company, meaning that its members are the owners. It provides coverage for liability risks associated with commercial companies and government entities, but all policies must explicitly state that they are not regulated by the same state laws that apply to standard insurance policies. Most small and mid-sized businesses that don’t join an RRG cover this same exposure with a standard general liability insurance policy from a traditional carrier.

This structure eliminates many state filing and licensing requirements, allowing members to have greater control over risk management and litigation matters. However, coverage is limited to liability insurance, and members do not benefit from a guaranty fund in the event the company encounters financial difficulties. Businesses with higher liability exposure that don’t join an RRG often add commercial umbrella insurance on top of a primary policy when they need higher limits.