When choosing between various captive insurance structures, it’s important to understand the individual properties of each. One of the more intriguing of these is the Risk Retention Group, which has specific attributes that are not shared by other types of captives. While Risk Retention Groups are a small subset within the larger category of group captives, they provide some unique benefits under the right circumstances.
What Are Risk Retention Groups?
Risk Retention Groups are a type of insurance company that provides liability coverage to their policy holders, all of whom are also owners. There must be at least two policy holders within each Risk Retention Group, and all policy holders must be engaged in a similar type of business or have some commonality in terms of their liability exposures.
The authorization for these groups to form comes out of the Product Liability Risk Retention Act that was passed by Congress in 1981 and that allowed companies to form groups on their own with the purpose of acquiring product liability coverage that was not available or that was prohibitively expensive when obtained through traditional insurers. This authority was then expanded in 1986 to include all types of liability coverage, and these are the same guidelines Risk Retention Groups operate under today.
How Risk Retention Groups Differ from Other Captives
Like other captive insurance structures, Risk Retention Groups provide a way for their policy holders to acquire certain types of business insurance coverage, often at a better rate and with more direct control than would be possible through private insurers. Unlike other group captives, however, Risk Retention Groups can only provide liability insurance coverage. This means that policies covering property, commercial auto, and workers compensation cannot be obtained through a Risk Retention Group.
While other types of captives can be domiciled anywhere, Risk Retention Groups must be based in the US. Their owners must also be policy holders, and all policy holders must be owners, and a Risk Retention Group cannot be formed without at least two owners. All policy holders within a given Risk Retention Group also have to have related business activities or liability exposures, none of which are not true when it comes to other captive insurance structures.
Benefits of Risk Retention Groups
With the limitations noted above come some benefits unique to Risk Retention Groups as well. For instance, because they are formed under the authority of a federal statute, these companies are only regulated by the state in which they are based but are free to provide coverage in all states in which they are registered. Benefits of that arrangement include the need to file tax returns in only one state and the elimination of the requirement to obtain separate licensing for each state in which coverage is offered.
Beyond these areas, Risk Retention Groups offer the types of benefits found in many other captive insurance structures, including greater control over policy details and customization, lower and more stable premium rates, and the potential to collect dividends. They are frequently used by doctors and hospitals seeking to obtain reasonable medical malpractice coverage, and they’re increasingly utilized within the transportation industry.
Some other popular sectors for the formation of Risk Retention Groups include education and public housing administration. Because of their unique structure, and the limitations that come with that, Risk Retention Groups are not the right choice for all businesses. However, under the proper circumstances, these captive insurance structures can provide essential coverage along with a number of other advantages.
To learn more about the benefits of Risk Retention Groups and how they can help your business succeed, call the professionals at Venture Captive Management today at 770.246.8535.