Risk Retention Act Of 1986

What Does Risk Retention Act Of 1986 Mean?

The Risk Retention Act of 1986 is a federal law that allows the formation of risk retention groups (RRGs) and purchasing groups (RPGs) to address specific types of liability exposures. This legislation was introduced in response to widespread appeals from the business community and municipalities nationwide. The Act emerged after a liability insurance crisis in the early 1980s, when many businesses could not buy affordable general liability insurance through traditional channels.

Insuranceopedia Explains Risk Retention Act Of 1986

Under the Risk Retention Act of 1986, members of a proposed risk purchasing group (RPG) or risk retention group (RRG) must engage in similar or related business activities to lawfully establish such associations. Doctors and lawyers commonly form RRGs because they share the same kind of professional liability exposures. This is a key provision of the law, as it clearly defines the eligibility criteria for forming these groups. For instance, multiple municipalities can lawfully create an RPG or RRG, but it would likely be unlawful for a municipality to form one in partnership with a hedge fund.