Risk-retention groups or RRGs are insurance companies organized by a group of similar businesses. Often, companies that use RRGs have difficulty receiving certain types of commercial insurance. Here is what you should know about RRGs.
A risk retention group insures businesses against liability risks. Unlike other insurance companies, RRGs are exempt from having to obtain a state license. The group does not have to contribute to guaranty funds, so in general, the premium costs are lower. If the group fails, however, the policyholders do not have any access to the state funds.
There are a lot of advantages to forming a risk retention group. One of the biggest advantages is that the members and policyholders can keep the rates low and retain the profits. As opposed to most of the insurance market, the members control the types of coverages available. If broader coverage options are necessary, then they can be added. Since every policyholder has similar risks, there is more stability in the coverage and the rates. Likewise, the RRG understands the coverage needs due to the shared interest of the policyholders.
Risk-retention groups are an alternative insurance option for similar organizations or businesses. Choosing an RRG could reduce costs and offer more customized options.