What is a risk retention group, and how is it different from a captive?
A federally enabled insurer that may write liability across state lines
A risk retention group sits in the same family as a captive but answers a different problem. Insurance is regulated state by state under McCarran-Ferguson, and Congress carved an exception so a group of owners could form one insurer and write liability cover for themselves across state lines. Queen says the exception was created because product liability capacity had collapsed, and it worked.
The history matters to the definition. Queen describes Lloyd's of London badly damaged by asbestos claims, and product liability capacity falling to near nothing as a result. Congress responded with the Product Liability Risk Retention Act, later broadened to cover liability generally, which is why a risk retention group may write liability and only liability.
The practical effect is jurisdictional. A company incorporated in one state can do business in others, subject to that state's domicile law, and Queen notes not every state has one.
Key takeaways
A risk retention group is a federal exception to state by state insurance regulation, and it may write liability cover only.
Unlike a captive, where only an owner can be insured, it can appoint a broker and take on new members.
Its lower expense load is what lets it price competitively, which Queen says is also why regulators tend to resist it.
Where it differs from a captive is who may buy. In a captive, only an owner can be an insured. A risk retention group can appoint a broker and sell to new members, which is how a structure that starts with a few committed owners grows into a market.
Queen walks through it with a cannabis testing laboratory: a small group capitalises a company in a domicile state, buys its own policy at an actuarially set premium, and then appoints a broker when others ask for the same cover.
How one is built
From a few owners to a market
- 01A group of owners capitalises a company in a state with a risk retention group law.
- 02They apply to that state's department of insurance and meet its minimum paid in capital.
- 03They buy their own policy at a premium the actuary sets.
- 04A broker is appointed so others in the same trade can buy the same cover.
From the conversation
Matt Queen
Captive Insurance Attorney, author of Modern Captive Insurance
“So you can incorporate a company in South Carolina that will then do business in California, Washington, New York, Florida, Louisiana.”
This answer begins at 33:21 of the full conversation. Watch or listen to the whole thing.
Citations
Sources
- 15 U.S. Code Chapter 65, Liability Risk Retentionhttps://www.law.cornell.edu/uscode/text/15/chapter-65
- 15 U.S. Code Chapter 20, Regulation of Insurance (McCarran-Ferguson Act)https://www.law.cornell.edu/uscode/text/15/chapter-20
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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