Cornerstone E&S Insurance Services - FAQ

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. [ back to questions]

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. [ back to questions]

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. RRGs, as Insurers, Issue policies to their members and bear risk. RRGs require members to capitalize the company. [ back to questions]

Who can be a member of an RRG?

The LRRA requires that members be homogeneous, i.e. engaged in similar businesses or activities that expose them to similar liabilities. [ back to questions]

What kinds of insurance coverage do risk retention groups provide?

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.

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What are the advantages of risk retention group?

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.

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How many risk retention groups are there?

At the end of 2003, there were approximately 141 risk retention groups operating in the United States, according to the Insurance Journal. [ back to questions]

How much premium do risk retention group generate?

According to surveys conducted by the Risk Retention Reporter, RRG annual premium in 2001 was estimated to be $895 million. [ back to questions]

Who forms risk retention groups?

Risk retention groups (RRGs) are often formed from trade and professional associations, which serve as the sponsor for the RRG liability insurance program. [ back to questions]

Who regulates risk retention 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. For risk retention groups (RRGs), the state in which the RRG is domiciled has primary regulatory authority over the entity. [ back to questions]