insurance

Risk Retention Group

A Risk Retention Group (RRG) is a type of insurance company owned by its members who share similar liability risks and business characteristics. These groups are formed to provide liability insurance coverage that may be difficult or expensive to obtain in the traditional insurance market.

Example

“The medical professionals formed a risk retention group to secure malpractice insurance after commercial insurers began limiting coverage in their specialty.”

Memory Tip

RRG = 'Really Related Groups' - businesses with similar risks band together to retain and manage their own insurance coverage.

Why It Matters

RRGs provide insurance solutions when traditional markets fail or become too expensive, giving specialized industries control over their coverage and claims handling. They can be particularly valuable for professionals in high-liability fields who face limited insurance options.

Common Misconception

People often confuse RRGs with regular insurance companies, but RRGs can only provide liability coverage and can only insure their own members who share similar business risks. They cannot sell coverage to the general public or provide property insurance.

In Practice

A group of 200 architects forms an RRG, each paying $15,000 annually in premiums for $2 million in professional liability coverage. The RRG collects $3 million yearly, pays out $1.8 million in claims, spends $600,000 on administration, and retains $600,000 in reserves. Members benefit from coverage tailored to architectural risks and potentially lower costs than commercial alternatives.

Etymology

Created by the Federal Liability Risk Retention Act of 1986, the term combines 'retention' from Latin 'retinere' meaning to hold back or keep. The concept was developed to address insurance availability crises in specialized industries.

Common Misspellings

risk retention grooprisk retension grouprisk retention gropurisk retention grup

Related Terms

captive insurance Excess Insurance

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…