Are Risk Retention Groups (RRGs) Legitimate Insurance Companies?
Risk retention groups have served as a liability insurance solution for nearly 40 years, providing customized coverage across the country to businesses and organizations in healthcare, transportation, construction, education, social services, and more. Yet, despite the versatility and longevity of risk retention groups, misconceptions about them persist even among insurance professionals. This article addresses five common questions about risk retention groups to clarify key facts about RRGs, their legitimacy, and what role they play in the U.S. liability insurance industry.
What is an RRG?
An RRG is a member-owned liability insurance company formed under the Liability Risk Retention Act of 1986 (LRRA), in which members share similar liability exposures and write tailored coverage for the group’s unique needs and risks. If you are new to RRGs, we recommend you first read, What is a Risk Retention Group (RRG) and How Does it Differ from Traditional Insurance Companies?. For a deeper understanding of risk retention groups, see our Risk Retention Group Comprehensive Guide.
Question #1: Are Risk Retention Groups Legitimate Insurance Companies?
Yes. RRGs are fully licensed insurance companies, authorized by federal law, subject to state regulatory oversight, and backed by nearly 40 years of proven performance across diverse industries.
RRGs serve niche, specialized liability insurance needs and do not sell to the general public. They sell highly customized coverage to their own members and operate under a unique regulatory framework that the vast majority of insurance professionals rarely encounter. To regulators, service providers, and businesses who are unfamiliar with RRGs, they appear unusual because they do not operate like traditional insurance carriers. But the differences between RRGs and traditional carriers are not signs of lesser legitimacy. They are intentional choices that were designed by Congress in order for risk retention groups to fulfill a unique purpose.
The Unique Purpose of Risk Retention Groups
Risk retention groups were created as a solution to preserve the affordability and availability of liability insurance in the U.S. market. In the early 1980s, American businesses and professionals faced wildly escalating liability insurance premiums driven by the onset of strict products liability law, runaway verdicts, and the proliferation of bad faith and unfair practices laws adopted by states. This created an environment in which liability insurance became both unavailable and unaffordable across dozens of industries. Congress responded first with the Products Liability Risk Retention Act (PLRRA) in 1981, and then expanded its reach to all forms of liability insurance with the LRRA in 1986.
The LRRA established risk retention groups as a solution for businesses facing similar liability exposures by enabling them to join together and form their own insurance company - owned and operated by the members it covers - as a stable, long-term alternative to a traditional liability insurance market that had proven unreliable for specialized industries.
Risk retention groups are still utilized today by companies and organizations that are underserved by the traditional liability insurance industry and unable to get the coverages they need. RRGs operate in every major business sector, with the largest sectors being medical professional liability and commercial auto liability. For these companies, the RRG structure allows for more tailored coverages and long term consistency through hard and soft markets.
How Risk Retention Groups Operate
Because of their purpose-driven function and the niche needs of the companies they serve, RRGs operate under a truly unique model. Below are four key characteristics of the RRG model that are notably different from how traditional insurance carriers operate.
Member ownership. RRGs are owned by the businesses they insure, not by outside shareholders. This member-ownership model was designed to encourage robust financial accountability, disciplined underwriting, and sound governance because RRG policyholders are also owners and have a direct stake in the RRG's financial health. (See Question #3 for a full discussion of RRG financial stability.).
Liability coverage that only members can purchase. Traditional insurance carriers typically cover a broad range of risks and sell to the general public. Conversely, RRGs provide liability insurance exclusively, which they sell only to their own members. This is not an incomplete or limited version of an insurance company. The liability-only scope of RRGs is intentional, as they were created specifically to fill a gap in liability insurance needs, not to replicate the full product portfolio of a general market carrier.
Single-state domicile licensing. While traditional insurance carriers must be licensed in every state in which they operate, RRGs are licensed in one domicile state and authorized by federal law to operate nationally from that single license, as long as they register in each additional state. This is not a regulatory shortcut. It is a more streamlined regulatory framework, designed to make national operation practical for risk retention groups without sacrificing oversight quality. This single state licensing framework is no less rigorous or comprehensive than the standards that apply to the regulation of traditional insurers and it has been consistently upheld by federal courts. (See Question #2 for a full explanation of how RRG regulation works.)
Non-participation in state guaranty funds. RRGs are excluded from participating in state guaranty funds, a state-mandated backstop that traditional insurance carriers rely on if they become insolvent. RRGs, instead, operate under multiple layers of proactive financial safeguards designed to prevent insolvency rather than respond to it. (See Question #4 for a full explanation.)
A Different Operational Model for a Different Type of Liability Insurance Company
In order to create a long-term solution that can effectively step in to fill any liability insurance gaps that the traditional insurance market creates, Congress had to come up with a different operational model for RRGs. This innovative approach has proven successful over the past 40 years since the inception of RRGs, with over 200 RRGs in operation today. RRGs like MCIC Vermont, which insures major academic medical centers including Johns Hopkins Medicine and Yale School of Medicine, and the Mental Health RRG (MHRRG), which has provided continuous coverage to behavioral health providers since 1987, are two examples of sophisticated, long-standing RRGs that have served their members across decades and multiple market cycles.
Although RRGs may appear unconventional to those unfamiliar with them, they are no less legitimate than traditional insurance companies and fill a unique and important role in the U.S. liability insurance market.
Question #2: Are RRGs Properly Regulated?
Yes, RRGs operate within a well-established federal regulatory framework that has been repeatedly upheld by the courts and is fully supported by the National Association of Insurance Commissioners (NAIC).
Unlike traditional insurance companies, RRGs are not subject to the overlapping insurance regulatory requirements of every state they operate in. Instead, LRRA established a regulatory structure in which a single domicile state exercises full regulatory authority over an RRG. This approach provides consistent, expert oversight without the conflicting requirements across 50 jurisdictions that would make national operation impractical for RRGs. While this is a unique regulatory framework that applies only to RRGs, it is in no way a gap in regulatory oversight.
Under the RRG single-state licensing structure, the domicile state's authority is comprehensive. RRGs must be chartered and licensed under the domicile state's insurance laws and submit the same key filings as traditional insurers, including annual and quarterly financial statements, actuarial opinions, revisions to their plan of operation, and notices of material changes such as shifts in management, ownership, or risk profile. They are subject to regular examinations and audits by their domiciliary regulators under NAIC-accredited standards — and those accreditation teams rigorously review how domiciliary regulators handle their RRGs. Although RRGs must register in non-domiciliary states in order to operate there, LRRA broadly preempts most non-domiciliary state insurance laws because RRGs are already fully regulated by their domicile state. The courts have consistently affirmed this regulatory framework, striking down all attempts by non-domiciliary states to impose unauthorized requirements on RRGs and ruling in favor of LRRA preemption.
Although RRGs operate under a different regulatory framework from traditional insurers, they are no less diligently regulated and scrutinized. Domiciliary regulators overseeing RRGs are held to the same accreditation standards that apply to their regulation of traditional insurers.
For a more detailed explanation of how RRG regulation works in practice, see How Are Risk Retention Groups (RRGs) Regulated?
Question #3: Are RRGs at Higher Risk for Insolvency?
No, RRGs are not at higher risk for insolvency. The vast majority of RRGs demonstrate strong long-term financial stability, supported by a regulatory framework and a member-ownership model, both of which promote sound financial management.
The insolvencies of Spirit Commercial Auto Risk Retention Group (2019), Global Hawk Insurance Company Risk Retention Group (2020), and Federal Motor Carriers Risk Retention Group (2011) drew significant public attention and cast a shadow over the perception of RRGs, particularly in the trucking sector where all three operated.
Because RRGs serve niche, specialized industries and are rarely encountered by the majority of insurance professionals, these three high-profile insolvencies became the primary — and in many cases, the only — point of reference for what a risk retention group is in the public perception. In reality, the facts of those cases and the broader track record of the RRG industry tell a different story.
Each of those failures was the result of criminal fraud by company insiders — not a structural failure of the RRG model. Criminal fraud can and does occur in any insurance structure, traditional or otherwise, and one model is not more susceptible than the other. Spirit, Global Hawk, and Federal Motor Carriers are outliers in nearly four decades of RRG history, not evidence of a systemic problem.
The vast majority of RRGs have operated successfully for decades and RRG gross written premium has grown for 14 consecutive years. That sustained performance reflects a sector built on sound financial management.
For any insurance company, governance quality matters. Just like a traditional insurance company, evaluating an RRG's financial condition by its claims history, governance structure, and regulatory standing are appropriate ways to determine whether an RRG is financially sound and well-run.
For a closer look at what distinguishes well-run RRGs, see 8 Traits of Successful Risk Retention Groups."
Question #4: Do RRGs Offer Less Financial Protection Than Traditional Insurers Because They Don't Participate in State Guaranty Funds?
No. The absence of state guaranty fund participation does not mean RRGs offer less financial protection. RRGs are structured differently, with proactive financial safeguards designed to prevent insolvency rather than respond to it.
Traditional insurers rely on state mandated guaranty funds to help cover a limited portion of claims if the company becomes insolvent. Under the LRRA, RRGs were excluded from state guaranty funds, as RRGs address financial protection more proactively. Rather than relying on a post-insolvency backstop, RRGs maintain multiple layers of financial safeguards: mandatory capital and surplus requirements set by domiciliary regulators, independent actuarial reserve analyses, regular financial examinations by state insurance departments, and member assessments that can be levied in the event of adverse loss development. Almost all RRGs are also required by their domicile state to carry reinsurance, further multiplying their capacity to cover claims and absorb losses.
The member-ownership structure adds another layer of financial protection that is unique to RRGs. Because members are also owners, RRGs have strong incentive to vet new members rigorously, enforce safety and risk management practices across their membership, and operate with long-term financial discipline that keeps the group solvent. As a result, RRGs continually work towards safer operational practices, fewer claims, and quicker, more efficient claims management. This is a successful model built around responsible, risk management practices and claims prevention that, in most cases, makes RRGs’ exclusion from state guaranty funds inconsequential.
Question #5: Are Risk Retention Groups Still Needed Today?
Yes. Risk retention groups are needed today, even more than they were when Congress created them in the 1980s, and the 239 currently active RRGs operating in the United States are evidence of that.
There are 239 active RRGs operating in the United States across diverse sectors, collectively writing approximately $5.5 billion in annual premiums. Why? Because risk retention groups continue to fill the gaps that traditional insurers create. Traditional carriers still periodically enter specialized liability markets, accumulate losses, and exit or raise their prices, leaving businesses in those sectors without stable coverage options. Housing, transportation, and medical are just a few examples of industries that are greatly impacted by fluctuations in affordability and availability of traditional liability coverage.
Conversely, RRGs operate with the goal to provide continuous, affordable coverage regardless of broader market conditions. Built by and for the industries they serve, RRGs also have the capacity to provide extremely customized coverage, with underwriting tailored to their members’ unique risks at a level that most traditional insurers do not have the capability to match. Without RRGs, responsible businesses nationwide would lose coverage, forcing many to close their doors without a viable alternative.
For a broader view of why organizations choose RRGs today, see Why Choose a Risk Retention Group?
Conclusion
Risk retention groups have served as an essential liability insurance solution in the U.S. market for 40 years, and are more relevant now than when they were first created.
As the nation's leading network of risk retention group experts, NRRA provides industry-specific RRG training, educational resources, and events. Contact NRRA to learn more about educational opportunities and events that are right for you.
About the National Risk Retention Association
The National Risk Retention Association (NRRA) is the only nonprofit organization solely dedicated to supporting risk retention groups and risk purchasing groups nationwide. Through advocacy, education, and industry collaboration, NRRA works to protect the integrity of the Liability Risk Retention Act and support the long-term success of the RRG industry.