A risk retention group (RRG) is a unique type of insurance company that is owned and controlled by its members. The members of an RRG typically consist of businesses with similar insurance requirements. RRGs underwrite the insurance policies of their members directly and are made possible due to the Federal Liability Risk Retention Act (LRRA), a federal law passed in 1986.
Because of their federal scope, RRGs are chartered in one state but may operate in any other state without obtaining a new license. They are also exempt from most state laws that regulate insurance, though they do still need to follow certain regulations, such as those pertaining to discrimination and fraud.
RRGs are sometimes an attractive option due to their potentially extensive customization options, allowing members to secure better rates on their ideal plans. On the other hand, due to the interconnected nature of RRGs, one member experiencing loss can result in increased monthly premiums for all members, which results in increased financial uncertainty.
Additionally, although RRGs can technically operate in any state without obtaining a new license, meeting the compliance standards of each state requires significant additional resources that wouldn’t be necessary if policies were underwritten through a traditional carrier.