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Risk retention groups continue to provide an effective way for employers to band together to form group captives even though their ranks have thinned in recent years.
Launched in 1981 under the Product Liability Risk Retention Act and expanded in 1986 under the Liability Risk Retention Act, RRGs can underwrite members' product liability and casualty coverage with the exception of workers compensation.
The number of RRGs, which peaked at 262 in 2008, has thinned to 237 as of February, according to the Risk Retention Reporter, a Pasadena, California-based new-sletter that tracks the industry.
That decline is due largely to continued softness in many lines of coverage offered in the traditional insurance market, observers say.
“Some RRGs are doing very well. On the other hand, some are struggling to maintain membership” because of the soft insurance marketplace, said Jon Harkavy, vice president and general counsel at RRG manager Risk Services L.L.C. in Washington.
“Commercial insurers are managing underwriting cycles better. That creates more competition,” said Michael Bemi, president and CEO of The National Catholic Risk Retention Group Inc., a Vermont-domiciled RRG.
But despite the competition, some RRGs have grown by leaps and bounds.
The RRGs that remain “are stronger and are doing well,” said Robert Myers, a partner with Morris, Manning & Martin L.L.P. in Washington and general counsel for the National Risk Retention Association.
For example, the Vermont-domiciled Alliance of Nonprofits for Insurance, Risk Retention Group in Santa Cruz, California, had 81 member-owners and premiums of just over $200,000 in its first year of operations in 2001, said Pamela Davis, the RRG's president and CEO.
Today, it has well over 5,000 member-owners and an annual premium flow of more than $36 million, she said.
That tremendous growth has been the result of several factors, Ms. Davis said, such as providing free risk management tools and employment advice from several attorneys employed by the RRG to help members follow proper employment practices, as well as specialized insurance, including an enhancement for cyber liability.
“With an RRG, tailor-made coverage can be provided to policyholders and owners,” said Dan Labrie, president and CEO in the Cheshire, Connecticut, office of Housing Authority Risk Retention Group Inc., a Vermont-based RRG whose premium volume has increased five-fold to $31 million since it was licensed in 1987, while the number of housing authorities in the RRG now tops 1,000 compared with just 26 in the first year.
“Frictional costs are much less for an RRG because you don't have the cost of filing and maintaining rates and forms in every state. In addition, RRGs don't see the same level of fees, assessments, and other expenses that traditional carriers face. You can respond quickly to the coverage needs of the members and issue new policies,” Mr. Labrie said.
The owners of captive insurers have scored major victories in cases against the IRS, but they still face uncertainties on several fronts.