How to Set Up a Risk Retention Group

Insurance exists to protect the assets and other interests of a business, but general liability insurance is not a catch-all solution. Many businesses formulate a risk retention strategy to differentiate between the losses that can or should be delegated to an insurance policy and those costs that should be incurred from the company’s own expenses. To mitigate financial damage from incidents that can not or should not be covered by insurance, many business entities seek to form a Risk Retention Group.

What is a Risk Retention Group

A Risk Retention Group (RRG) is a conglomerate of similar businesses which come together to form a captive insurance solution. The intent behind an RRG is to provide comprehensive liability insurance to its parts. This methodology is less expensive to its participants than purchasing a commercial insurance policy and allows for exemption from certain state laws.

How to Form an RRG

Businesses that are exposed to similar forms of liability are RRG compatible. Forming an RRG only requires licensing in a single U.S. state, though additional follow-up documentation will be required for each state in which the RRG conducts business.

Retaining certain risks at a company’s own expense is occasionally the more prudent course of action when insurance coverage is more costly. For industry-savvy business owners, the option of banding together with others to form an RRG could be even more beneficial.

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