Over the past 30 years, there has been a shift in dental and medical malpractice insurance from the traditional insurance company to many successful professional liability Risk Retention Groups, captives and other self-insurance company’s.
You may be asking yourself, what is a Risk Retention Group?
A Risk Retention Group (RRG) is a policy issuing liability insurance company that is owned by its insured member’s and formed under the Liability Risk Retention Act of 1981, as amended in 1986. The Liability Risk Retention Act (LRRA) is a federal law that helps U. S. businesses, professionals, and municipalities created their own solutions for liability insurance which has become either unaffordable or unavailable due to liability crisis problems in the United States. The LRRS permits a RRG to operate on a direct basis in all 50 states (and District of Columbia) under one state license, provided that it registers in each state in which it conducts business. The LRRA is a federal law, and therefore, preempts most state regulation, making it easier for RRG’s to operate nationally under uniform legislation. The primary requirements of the RRG include:
- It can only write liability insurance
- There must be more than one insured/owner
- All insured’s must be owners and likewise all owner must be insured with the company
- Comply with their unfair claims settlement practice
- Pay taxes
- Participate in any mechanism created to pay an equitable apportionment among insureds for policies written through the RRG.
- Comply with any lawful state order
- Comply with state law as to deceptive, false, or fraudulent acts.
How are RRG’s different from Captives?
Several states have passed their own captive insurance laws in order to create an attractive domicile for homogenous groups wishing to start their own RRG. Obviously, being the domiciled state is a revenue producing venture for these captive states.
The word captive is general term and usually refers to self-insuring in some manner, and under the heading of captive we find such structures as: single parent or pure captives, group captives, RRG’s, self-insurance funds or trusts, off-shore captives, rent-a-captives and other alternative insurance mechanisms.
A RRG may be formed as a captive or as a traditional insurance company, but in all cases, must be domiciled in a U.S. state, and therefore, must be an onshore entity. Once licensed by a singe state, a RRG is permitted to write business on a direct basis in all fifty states whereas other forms of captives are not able to operate on a nationwide basis without the use of a fronting carrier. RRG’s are regulated insurance carriers providing underwriting, claims, risk and financial management to its insured’s.
How are RRG different for admitted insurance company’s?
The traditional admitted insurance company must be license and comply with the insurance rules of each state in which they operate. Most times admitted carriers must file all their forms and rates for approval by each state’s insurance department. RRG’s created under a federal act and is required to be license only in its state of domicile. A RRG registers with, but is not subject to, the insurance laws of any state except the state of domicile.
What do I receive for my investment in an RRG?
Each insured member will receive ownership in the RRG.
The board of directors will determine when a dividend is declared and paid to all subscribers in good standing based on the number of shares held.
Who oversees a RRG?
The state of domicile reviews the RRG’s financial statements quarterly and such statements are also filed with the National Association of Insurance Commissioners. All RRG’s have filed a business plan with its state of domicile specitying its cope of business and state where it plans to write insurance. Other non-domiciled states do have some overview rights as noted above. The reinsurers of the RRG have strong vested interest in the RRG’s well-being and the business plan. Underwriting guidelines and financials are provided to and approved by its reinsurers. Reinsurers will visit the RRG’s to audit their underwriting files for compliance with the agreed upon business plan.
The advantages of dentist-owned and operated insurance companies are numerous, especially for single specialty programs. With a dentist-owned insurance company, the dentist led board of directors has compete control over the program. The results are savings, materialized through improved claims experience and efficient operation, returned to dentist-policyholders wither in the form of dividends or reduced premiums Financial success is also found in many cases where dentist-owned companies vigorously defend their insured’s when peer review indicates that negligence was nonexistent, rather than following the route of commercial companies who are too often willing to settle unwarranted and frivolous claims, despite the resulting effect on the dentist’s professional reputation. In addition, since dentists examine the claims, dentist-owned companies use this information to develop effective and acceptable risk management programs.