A risk retention group is a group self-insurance plan that assumes and spreads risk across all members. Risk retention groups can cover all liability exposures, including E&O, medical malpractice, general liability, product liability and professional liability. The following are pros and cons of RRGs.
Cons of an RRG
One disadvantage of a risk retention group is that all members are tied together. Poor underwriting from one member can affect the whole group. You may not deserve to pay extra premiums, but you may have to because of another member’s experience.
If you like to keep your information private, then group insurance may not be for you. In RRGs, you have to share information about your business with others. In the unfortunate event that your RRG fails, it can be difficult to re-enter the traditional marketplace.
Pros of an RRG
For many companies, particularly those who have niche insurance needs, RRGs have more benefits than disadvantages. One of the major benefits is that the members control the risk and litigation, not to mention the market itself. You establish a stable market for your rates and coverages. When you establish an RRG, you have broader coverage than you would with the traditional market.
For businesses that require broader coverage or want more control over costs, RRGs are beneficial. To avoid failure and future problems, relying on a company that understands how to establish a risk retention group properly is critical.