Frequently Asked Questions


What is the Liability Risk Retention Act?

The Liability Risk Retention Act (LRRA) is a federal law that was passed by Congress in 1986 to help U.S. businesses, professionals, and municipalities obtain liability insurance which had become either unaffordable or unavailable due to the "liability crisis" in the United States. Request a complimentary Guide to the 1986 Risk Retention Act.

How does the Risk Retention Act work?

In passing the Liability Risk Retention Act, Congress provided insurance buyers with a marketplace solution to the "liability crisis," enabling them to have greater control of their liability insurance programs. To achieve this goal, Congress created two entities -- risk retention groups (RRGs) and purchasing groups (PGs).

What is a risk retention group?

A risk retention group (RRG) is a liability insurance company that is owned by its members. Under the Liability Risk Retention Act (LRRA), RRGs must be domiciled in a state. Once licensed by its state of domicile, an RRG can insure members in all states. Because the LRRA is a federal law, it preempts state regulation, making it much easier for RRGs to operate nationally. As insurance companies, RRGs retain risk.

What is a purchasing group?

A purchasing group (PG) is comprised of insurance buyers who band together, typically on a national basis, to purchase their liability insurance coverage from an insurance company, including a company operating on an admitted basis, a surplus lines basis, or a risk retention group. As the name implies, the PG serves as an insurance purchasing vehicle for its members.

What is the difference between risk retention groups and purchasing groups?

The primary difference between risk retention groups (RRGs) and purchasing groups (PGs) is that RRGs retain risk while PGs do not. PGs purchase insurance from an insurer, which issues the policies and serves as the risk bearer. RRGs, as insurers, issue policies to their members and bear risk. Another key difference between the two entities is that RRGs typically require members to capitalize the company whereas PGs require no capital. Other differences derive from the way in which the two entities are regulated, both under the Liability Risk Retention Act (LRRA), as well as state laws. Another difference has to do with reinsurance, which almost all RRGs purchase.

What are the similarities between risk retention groups and purchasing groups?

For both risk retention groups (RRGs) and purchasing groups (PGs), the Liability Risk Retention Act (LRRA) requires that members be homogeneous, i.e. engaged in similar businesses or activities that expose them to similar liabilities. This is an important similarity, as PGs can reorganize into RRGs at a future time.

What kinds of insurance coverage do risk retention groups and purchasing groups provide?

For both risk retention groups (RRGs) and purchasing groups (PGs), the type of insurance coverage permitted is set forth in the Liability Risk Retention Act's (LRRA's) definition of "liability," which includes all types of third party liability, such as general liability, errors and omissions, directors and officers, medical malpractice, professional liability, products liability, and so forth. The LRRA does not extend to workers compensation, property insurance, or to personal lines insurance, such as homeowners and personal auto insurance coverage.

What are the advantages of risk retention groups?

As insurance companies owned by their members, some of the key advantages offered by risk retention groups (RRGs) to their members relate to the control members obtain over their liability programs. This control often translates into lower rates, broader coverage, effective loss control/risk management programs, participation by RRG members in favorable loss experience, access to reinsurance markets, and stability of coverage, notwithstanding insurance market cycles.

What are the advantages of purchasing groups?

Purchasing groups (PGs) provide advantages for their members, their insurers, and the agents/brokers who administer the group program. For PG members, the PG offers tailor-made coverage, broader coverage terms, lower rates, loss control/risk management programs, and often provides rewards for good loss experience, such as dividends in the form of credits against next year's premium. For insurers, PGs offer the ability to achieve greater profitability. For agents and brokers, PGs offer the ability to add value to transactions and retain business.

How many risk retention groups and purchasing groups are there?

Total number of RRGs: 230 RRGs as of June, 2017
Total Number of PGs: 991 PGs as of June, 2017
(According to the Risk Retention Reporter)

Who keeps track of risk retention groups and purchasing groups?

The Risk Retention Reporter has been monitoring the formation of risk retention groups (RRGs) and purchasing groups (PGs) since 1987 with the cooperation of state insurance departments. Before offering insurance coverage to state residents, RRGs and PGs must register with state insurance departments in compliance with the Liability Risk Retention Act and state laws.

Who forms risk retention groups and purchasing groups?

Risk retention groups (RRGs) are often formed from trade and professional associations, which serve as the sponsor for the RRG liability insurance program. Purchasing groups (PGs) are most often formed by insurance professionals, including agents, brokers and insurers, based upon an identified need of commercial insurance buyers.

Who regulates risk retention groups and purchasing groups?

Although the Liability Risk Retention Act is a federal law, it has no enforcement mechanism of its own, and relies wholly on state insurance departments for its implementation. Because of the differences between risk retention groups (RRGs) and purchasing groups (PGs), the regulation differs for each of the entities. For risk retention groups (RRGs), the state in which the RRG is domiciled has primary regulatory authority over the entity. For purchasing groups (PGs), regulation entails not only the domiciliary state of the PG, but regulation of the PG's insurer, as well as its agent and/or broker.

How can I get more information about risk retention groups and purchasing groups?

As specialists in the Liability Risk Retention Act, we provide professionally written, practical and relevant information that enables you to participate in the development of risk retention group (RRG) and purchasing group (PG) programs. Get an overview of all our publications in the Products & Services section of our website.