The Advantages and Disadvantages of Risk Retention Groups

Advantages of Risk Retention Groups

(i) Retained Profits
As risk Retention Groups are owned by their members, profits are retained by policyholders rather than being passed to a commercial insurer.

(ii) Exemption from State Laws
The Risk Retention Act allows Risk Retention Groups to be formed and to be exempt from state laws.

(iii) Stability of Cover
There is more stability of insurance as in fluctuating market conditions, a Risk Retention Group allows members to more accurately know what their insurance costs will be and to plan accordingly.

(iv) Scope of Cover
Coverage is often broader than in the regular insurance market. Members have superior insight into what their exposures are and can address them accordingly allowing them to be included in the insurance coverage.

(v) Insured Interest
As members are at risk they will be more receptive to implementing loss control measures that will in turn improve losses and reduce premiums.

(vi) Reinsurer Relationships
Relationships can be developed directly with reinsurers which can lead to improved reinsurance premiums and greater stability.

(vii) Shared Interests
Members often need to share information about their businesses, which can help their operations.

(viii) Expertise
The professional services of an underwriting manager and claims staff can be hired or set up to develop expertise specifically for the Risk retention Group's interests.

Disadvantages of Risk Retention Groups

(i) Poor results from Other Parties
The experience of one member can lead to all members having to pay extra premiums.

(ii) Re-entry into Market
If the Risk Retention Group fails then re-entering the commercial insurance market can be more costly with less broad coverage.

(iii) Shared Information
Members may not want to share information about their own businesses with others.