Captives/Risk Retention Group

A "Captive" usually is an entity setup in order to "self-insure" a corporation/business and/or individual in some manner. A captive insurance company ("Captive") is an insurance company organized to cover the insurable risks of the parent organization and/or its affiliates in a specific jurisdiction. Therefore, it is a captive on behalf of the company or group that it insures and as such can extend evidence of coverage.

A Risk Retention Group (RRG) is one form or type of captive that is restricted to writing only liability coverage. A Risk Retention Group may have either state or federal charters. A federal charter allows the Risk Retention Group to write liability coverage directly in any state where it is registered without having to become licensed carrier in each state or use a fronting company. This can significantly reduce the cost and effort of crossing state boundaries. However, they are restricted to writing liability coverage.

Why Use Captives and Risk Retention Groups?
The most recent industry data, points to over 40% of major U.S. companies owning their own captive insurance companies. What these companies have learned is that there are many significant advantages including:

• Gives you control over your claims: no one knows your business and industry better than you
• Captures the investment income for you, not for a third-party insurer
• Reduces costs by eliminating the large insurance company's profit margin and potentially high overhead
• Offers flexibility to take advantage of lower rates during soft markets to build reserves for use to cover more risk when the market hardens
• Allows you to purchase high limit ‘reinsurance' at wholesale because you benefit from your claims experience, not that of other companies that may have high claims: with better claims experience, the excess of net premiums over claims is retained to offset any future claims
• The claims management process is more efficient due to dedicated nature of the captive

Why Use A Risk Retention Group?
Risk Retention Groups are insurance companies. They are similar to mutual companies in that they are owned by their policyholders. Risk Retention Groups were enabled by the Federal Liability Risk Retention Act of 1981 to help business and professional organizations obtain liability insurance that had become unavailable or unaffordable due to the increasing numbers of lawsuits.