Risk Purchasing Groups (RPGs)

What is a Risk Purchasing Group (RPG)?

A risk purchasing group purchases liability insurance on a group basis for its members whose business or activities are similar or related. A group must be domiciled in one of the United States or the District of Columbia.

Unlike a risk retention group (RRG), a risk purchasing group (RPG) is not an insurance company and its members do not underwrite their own coverage. However, RPGs, like an RRG, are subject to various tests pertaining to membership, exposures, and types of coverage(s) offered.

What is the Origin of Risk Purchasing Groups?

Congress passed the Product Liability Risk Retention Act in 1981. This created a new method of buying insurance, Risk Purchasing Groups. In 1986, Congress broadened the Act to include commercial liability and renamed it the Liability Risk Retention Act (LRRA ). The LRRA is codified in Title 15 of the United States Code, beginning at Section 3901.

Federal Liability Risk Retention Act Guide

Can Members of the Public Purchase Obtain Insurance Through a Risk Purchasing Group? 

No. One of the reasons why the Courts treat risk purchasing groups differently is that they only purchase insurance for their members, not for the public generally. 

How Does LRRA Define a Risk Purchasing Group?

Section 3901 of the LRRA defines a risk purchasing group as follows: 

. . .

(5) “purchasing group” means any group which-- 

(A) has as one of its purposes the purchase of liability insurance on a group basis; 

(B) purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in subparagraph (C); 

(C) is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and 

(D) is domiciled in any State; 

Are Purchasing Groups a form of Captive Insurance? 

No, while risk purchasing groups are also enabled under the same federal law as risk retention groups, they do not involve risk transfer as they only purchase insurance for their members on a group basis from some other insurance company entity.

What Laws, Rules, Regulations and Orders Apply to Risk Purchasing Groups?

Risk purchasing groups are created pursuant to the Federal Liability Risk Retention Act (15 U.S.C. 3901, et. Seq. - LRRA) and they have to comply with LRRA.  Risk purchasing groups are generally subject to State law, however, they are granted an exemption from any State law, rule, regulation or order to the extent such law, rule, regulation or order would:

(1) prohibit the establishment of a purchasing group;

(2) make it unlawful for an insurer to provide or offer to provide insurance on a basis providing, to a purchasing group or its members, advantages, based on their loss and expense experience, not afforded to other persons with respect to rates, policy forms, coverages, or other matters;

(3) prohibit a purchasing group or its members from purchasing insurance on the group basis described in paragraph (2) of this subsection;

(4) prohibit a purchasing group from obtaining insurance on a group basis because the group has not been in existence for a minimum period of time or because any member has not belonged to the group for a minimum period of time;

(5) require that a purchasing group must have a minimum number of members, common ownership or affiliation, or a certain legal form;

(6) require that a certain percentage of a purchasing group must obtain insurance on a group basis;

(7) require that any insurance policy issued to a purchasing group or any members of the group be countersigned by an insurance agent or broker residing in that State; or

(8) otherwise discriminate against a purchasing group or any of its members. 

The overarching theme of the risk purchasing group provisions of the LRRA is that Congress intended that States are not to undertake activities designed to discriminate against risk purchasing groups or calculated to create impediments to the ability of risk purchasing groups to do business. 

By comparison to the LRRA’s treatment of risk retention groups (RRGs), RRGs are granted broad preemption from State regulation with nine (9) specified exceptions of things that the States are allowed to regulate. Risk purchasing groups, on the other hand, are broadly subject to State regulation with express exemptions from State laws designed to impede their progress. While these two federal provisions were drafted differently by Congress, they were created to complement each other in support of a scheme designed to fulfill the same congressional intent – to help resolve the problems of unavailability and unaffordability of insurance by allow procurement of coverage on a group basis.

What Does a Risk Retention Group Have to do to Operate In a Non-Domiciliary State?

A risk purchasing group intending to do business in any state must give notice of intent to do so to the appropriate state’s insurance commissioner. The notice must identify the state of domicile and principal place of business for the risk purchasing group, categorize the lines and classifications of liability insurance to be purchased, and provide the name and domicile of the insurance company from which insurance is to be purchased. In addition, the risk purchasing group must designate the commissioner of each state as its agent for service of process.

The LRRA allows for advantages in rates, forms and coverages when they are based on the risk purchasing group’s loss and expense experience. However, the LRRA does not preempt individual state authority regarding approval of rates, forms or coverages regarding risk purchasing groups. Note: This is not the case with risk retention groups.

Where do Risk Purchasing Groups pay premium tax?

As of this writing, the treatment of allocation of premium taxes for RPGs remains somewhat unsettled, because the “home state” taxation recommendations established by the Congress in Dodd Frank (i.e., the Nonadmitted and Reinsurance Reform Act [also referred to as “NRRA”]) adopted in 2020 did not specifically clarify that the recommendations would apply equally to risk purchasing groups.   

When Must a Risk Purchasing Group Purchase Through a Broker Pursuant to Surplus Lines Laws?

A risk purchasing group may not purchase insurance from an insurer that is not admitted in the state where the risk purchasing group is located, or from a risk retention group that is not chartered in a state unless the purchase is through a licensed broker acting pursuant to applicable surplus lines laws.