What is the Liability Risk Retention Act?

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

What is a Risk Retention Group?

A Risk Retention Group (RRG) is a liability insurance company that is owned by its members. As insurance companies, RRGs issue policies and retain risk.

How is an RRG capitalized?

RRGs require members to capitalize the company.

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.

What kinds of insurance coverage do Risk Retention Groups provide?

"Liability coverage" which includes all types of third party liability, such as general liability, errors and omissions, directors and officers, medical malpractice, professional liability and products liability. The LRRA does not extend to workers compensation, property insurance, or personal insurance, such as homeowners or personal auto.

What are the advantages of Risk Retention Groups?

The key advantages relate to member control and flexibility. This control and flexibility may translate into lower rates and broader coverage. Member/insureds may also enjoy better loss control and risk management programs, share access to reinsurance markets, market stability and may participate in underwriting profits.

Who forms Risk Retention Groups?

The state in which the RRG is domiciled has primary regulatory authority. Although the LRRA is a federal law, it has no enforcement mechanism of its own.

Definition

Authorized by the Federal Liability Risk Retention Act of 1986, Risk Retention Groups are insurance companies whose members/insureds engage in similar or related business activities.

Advantages

• Member control over risk and litigation issues.
• Stable market for coverage.
• No expense for fronting fees.
• Unbundling of services.

Disadvantages:

• Risks are limited to liability insurance.
• Not permitted to write unrelated business.
• No guaranty fund applicable.
• May not satisfy proof of financial responsibility.