Liability Risk Retention Act - Explained
What is the Liability Risk Retention Act?
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What is the Liability Risk Retention Act?
Liability Risk Retention Act, LRRA is a federal law that got the approval of the United States in 1986. Contained in the act is the ability of businesses, professionals and cities to obtain liability insurance. Liability insurance offers businesses and individuals protection damages and risks related to people or property. However, liability insurance in past times was difficult for businesses or individuals to obtain given risk factors that arose during liability crisis but with the passing of LRRA into laws, liability insurance was also reinstated.
Back To: INSURANCE & RISK MANAGEMENT
What is Covered in the Liability Risk Retention Act?
Liability Risk Retention Act became a gateway for business owners and professionals to access liability insurance. The passage of LRRA also provided businesses with an escape from and a solution to liability crisis. This was achieved through the formation of Risk Retention Groups, RRGs and Purchasing Groups, PGS. Risk Retention Groups are saddled with the responsibility of creating insurance companies under the laws of each state where the retention group is based. Purchase groups however refers to insurance buyers who are provided with liability insurance by RRGs. However, for PGs to enjoy the liability insurance provided by RRGs, they must have membership with RRGs.
What is a Risk Retention Group?
A Risk Retention Group, RRG refers to a domicile or state-chartered liability insurance company that is owned by its members. The members of a risk retention group can be called the purchase group, in this group are businesses, professionals or cities entitled to the insurance offered by RRG. As provided by the Liability Risk Retention Act (LRRA), a RRG must have a chartered state, that is the state in which it is domicile. RRGs base their modes of operations in accordance to the laws of LRRA. The major role of RRGs is to retain risks that might arise due to liability crisis.
What is a Purchasing Group?
A purchasing Group, PG is one of the two entities created by the congress of the United States when the Liability Risk Retention Act was passed in 1986. A Purchase group is an assembly of insurance buyers who come together on a unified motif of securing liability insurance. Purchase groups have a uniform aim of purchasing liability insurance from insurance companies usually the Risk Retention Groups or Companies. Hence, membership of PGS avail business owners or professionals the opportunity to purchase liability insurance coverage.
What is the difference between risk retention groups and purchasing groups?
Although, risk retention groups (RRGs) and purchasing groups (PGs) have some terms that bring them together, they are not the same and do not have similar functions. PGs look up to RRGs for liability insurance coverage while RRGs basically offer insurance to members of the Purchase groups. The major differences between RRGs and PGs are; RRGs retain risks while PGs do not RRGs are insurers, PGs are the insured. RRGs bear liability risks, PGs are protected from liability risks. Other difference between these two groups include their policies and how they are regulated under the Liability Risk Retention Act.
What are the similarities between risk retention groups and purchasing groups?
Despite that many differences exist between the risk retention groups (RRGs) and purchasing groups (PGs), they still have some things in common. Under the the Liability Risk Retention Act (LRRA), there is a requirement for the membership of both RRGs and Pgs, this requirement is that their memberships must be homogeneous. For instance, they must have businesses in common, they must also desire similar liability insurance coverage in the case of PGs.
What kinds of insurance coverage do risk retention groups and purchasing groups provide?
As contained in the laws of LRRA, risk retention groups have specific insurance they provide. Both risk retention groups (RRGs) and purchasing groups (PGs) have some kinds of insurance coverage that they offer and this is in compliance with the liability definition by Liability Risk Retention Act. RRGs provide insurance for all types of third party liability, professional liability, products liability and general liabilities such as medical malpractice, errors and omissions among others. However, since the definition of liability by LRRA does not include property insurance, workers compensation or personal insurance, RRGs do not provide these kinds of insurance.
What are the advantages of risk retention groups?
There are quite a lot of benefits that members enjoy from risk retention groups. Aside from providing basic insurance coverages, there are other advantages of risk retention groups; Members have control over their liability programs. RRGs provide cost-effective liability insurance. Members enjoy lower rates. Provision of risk management programs that are efficient. Access to reinsurance markets. Members enjoy stability of liability coverage at a low rate. Helpful loss experienced by members. Members of RRGs enjoy the above benefits regardless of insurance market cycles or instability.
What are the advantages of purchasing groups?
There are certain significant benefits that purchase groups offer to their members or insurance buyers. The administrators of the purchase groups also have some benefits they derive from PGs, that is PGs also have some benefits in favor of insurers. These benefits can either be financial or non-financial. The ability to have huge profit through the insurance buyers is one of the benefits of PGs to insurers. The benefits that members of PGs enjoy include lower purchase rates, risk control or management programs, wider insurance coverage and protection in times of loss. Also, PGs enables brokers to retain their business and also enhance profitable transaction.
How many risk retention groups and purchasing groups are there?
As at October 2018, there number of risk retention groups and purchasing groups have increased tremendously unlike when they were first created by the Congress on United states when the Liability Risk Retention Act was passed in 1986. A total number of 217 risk retention groups were recorded in OCtober, 2018 while a number of 1003 purchasing groups were accounted for in that same year. This figure are got from the updates of a risk retention reporter.
Who keeps track of risk retention groups and purchasing groups?
Some people do believe that both risk retention groups and purchasing groups are let on the loose since the time they were established. However, this is not true, there is a close monitoring of both groups right from the time of establishment. Since 1987, the Risk Retention Reporter has been tracking the activities of risk retention groups (RRGs) and purchasing groups (PGs) with the assistance of state insurance departments. Before RRGs and PGs can operate in any state, they have to register with state insurance departments and this has made tracking these groups easier for the risk retention reporter.
Who forms risk retention groups and purchasing groups?
Although, risk retention groups and purchasing groups are the two entities created by the Congress to have a greater control of liability insurance programs, the question of who forms these two groups should not be left unattended to. The formation of these groups refer to their memberships. Risk retention groups are made up of sponsors for the liability insurance program, these sponsors are often members of trade associations and professional unions. Purchasing groups on the other hand is formed by insurance buyers, agents, brokers and other insurance professionals.
Who regulates risk retention groups and purchasing groups?
Just as the activities of both risk retention groups and purchasing groups need to be tracked, these groups also need to be regulated. State insurance departments are responsible for the implementation of risk retention groups and purchasing groups in compliance with the federal laws of LRRA, state insurance departments are also responsible for their regulation. State insurance departments regulate each of these groups in line with their peculiarities. Since every RRG must be domicile in a state, the insurance department of the state has the utmost right to regulate it. PGs on the other hand are not only regulated by the domicile states but also by the insurer of the PGs.
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