The term ‘Risk Retention Group‘ (RRG) originated in the Federal Risk Retention Act of 1981, which was passed in response to a ‘Products Liability Crisis’ that arose from the rising costs and decreasing availability of products liability coverage from commercial insurers in the 1970s. This Act was written to help organizations in any industry to meet their products liability risk financing needs (for example, by forming their own captive insurance company). In response to the liability crisis in the mid 1980s, the Act was expanded in 1986 to include all types of liability insurance (except personal liability and workers compensation).

The Act provides for like businesses to join together to insure their common liability risks.

Under the Act, each insured is required to have an ownership interest in the insurance company.