FAQ's
1. What is a risk retention group?
An RRG is a federally authorized, risk-bearing entity that is chartered and licensed as a US domestic insurance company in a single state - called its state of domicile. The LRRA requires that the primary purpose of the RRG be to assume and spread the liability risk of its members. The members must be engaged in a similar business but can be located anywhere in the US. Unlike commercial insurers, once the RRG has obtained a license from its state of domicile, it may operate in all other states without the burden of obtaining additional state licenses.
2. Who owns the risk retention group?
The RRG is owned by its insured members. These owner-insureds contribute the required capital surplus often as a component of their premium payments. The amount of capital surplus is determined by the premium rate and level of exposure subject to state required minimums. In healthcare, RRG owner-insureds can include business entities and professionals who share medical liability risk, including hospitals, free standing facilities, physicians from all specialties practicing in groups or as individuals, and other licensed providers.
3. Who regulates risk retention groups?
The state in which the RRG is domiciled has primary regulatory authority over the entity. The LRRA is a federal law with no enforcement mechanism of its own and relies solely on the state insurance departments for its regulation. Each state has its own RRG regulations, which vary from being more or less restrictive, but the state regulations cannot preempt the provisions of the federal LRRA. States with the most favorable regulations include Arizona, Nevada, South Carolina, the District of Columbia, Hawaii and Vermont. The LRRA allows the RRG to be domiciled in one of these states regardless of the location of the owner-insureds.
4. What are the advantages of risk retention groups?
The RRG owner-insureds own the insurance company and appreciate all the benefits of equity ownership, including receiving dividends from profitable operations. The owner-insureds govern the operation of the RRG and control the underwriting guidelines, investment philosophy, claims practices and the other key aspects of their medical liability insurance program. The ownership and control by the owner-insureds produce more favorable loss experience and reduced operating expenses, which translate into lower premiums. Of importance is in the long run the RRG members are assured their cost of coverage will be the actual cost of claims and administration, not cost plus insurer shareholder profit.
5. How much risk do risk retention groups retain?
RRGs can retain all or any portion of the risk. How much depends on the capital surplus requirements, the availability of reinsurance, the coverage limits written, and the owner-insureds' capability to manage the risk. The optimal amount of retention, based on claim statistics including the owner-insureds' loss history, will be calculated by an actuary for the initial underwriting analysis and as part of ongoing operations. The RRG Board ultimately makes the final decision.
6. How secure are Risk Retention Groups?
RRGs offer the same level of security as commercial insurance companies since RRGs are regulated by the insurance department of the state of domicile under the guidelines of the National Association of Insurance Commissioners. However, the RRG may not be subject to all of the insurance laws and regulations of a particular state. State sponsored insurance insolvency guaranty funds are not available for RRGs. The security for the RRG is provided by the owner-insureds' long-term commitment to the program, and their ability to manage their own risk and the operations of the RRG with the expertise and support of the attorney-in-fact.The policies issued by the RRG are not assessable.
7. How many Risk Retention Groups are in operation today and are they successful?
According to the Risk Retention Reporter, since year-end 2001, the number of RRGs has risen by more than 150, bringing the total number of RRGs to 234 as of July 2006. In 2005 RRGs generated nearly $2.5 billion in annual premium. Approximately 50% of total RRG premium is generated by physicians and healthcare organizations. The annual rate of insolvencies for all RRGs is comparable to that of traditional property casualty insurance companies at approximately 1 in 100 companies.
8. How can I get more information on Risk Retention Groups?
The National Risk Retention Association (NRRA) offers information to members and nonmembers at its website www.nrra-usa.org. The Risk Retention Reporter, the leading RRG publication, offers information to the general public at its website at www.rrr.com. For more information on how an RRG can work for you, please contact Physhield at (305) 779-1760.
9. How do I join Physhield?
You simply complete Physhield's Medical Liability Questionnaire and submit it with your historical claims information plus your insurance coverage and premium history, including the program that insures you currently. Physhield will underwrite and price your risk and issue a proposal for you to compare to other coverage alternatives. Your coverage becomes effective on your next renewal date with payment of the premium and the required capital contribution. The capital contribution equals 33% of the amount of your mature claims-made premium calculated at the time your coverage becomes effective. Physhield offers 'nose' and 'tail' coverage to qualified physicians to prevent gaps in coverage.
10. How do I contact Physhield?
Physhield's Executive and Administrative Headquarters is located at 700 S Royal Poinciana Boulevard, Suite 506; Miami, Florida 33166. The telephone number is 305-779-1740, fax 305-779-1778, email: rtrinka@phyhealth.com.
