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RRGs and Medical Malpractice Insurance Companies
[By Dr. David Edward Marcinko; FACFAS, MBA, CMP™]
Definition
Risk Retention Groups are owner-controlled insurance companies authorized by the Federal Risk Retention Act of 1986. An RRG provides liability Insurance to members who engage in similar or related business or activities for all or any portion of the exposures of group members, excluding first party coverage’s, such as property, workers’ compensation and personal lines. Authorization under the federal statute allows a group to be chartered in one state, but able to engage in the business of insurance in all states, subject to certain specific and limited restrictions. The Federal Act preempts state law in many significant ways.
RRG Advantages:
Medical RRGs
- Avoidance of multiple state filing and licensing requirements;
- Member control over risk and litigation management issues;
- Establishment of stable market for coverage and rates;
- Elimination of market residuals;
- Exemption from countersignature laws for agents and brokers;
- No expense for fronting fees;
- Unbundling of services.
Of 130 new medical malpractice liability insurance companies that entered the market between 2002 and 2006, 65 percent were risk-retention groups, according to a study conducted for the National Risk Retention Association by the actuarial consulting company Milliman Inc.
Statistics from the Risk Retention Reporter, a journal that tracks the industry, showed that through September, 43 percent of the 23 risk-retention groups formed this year across various sectors are doctor-owned, while in 2001, no new physician risk-retention groups joined the market.
RRG Disadvantages
Some doctors and industry experts warn about drawbacks of risk-retention groups and question whether the physician-run companies – most of them relatively young – can survive future claims payouts and tough market cycles, while doctors do not have access to state guaranty funds to back up their coverage if a risk-retention group struggles financially or goes out of business. The Risk Retention Reporter noted that, anecdotally, physician self-insurance companies have failed at no greater rate than traditional carriers in recent years.
Conclusion
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Filed under: iMBA, Inc., Insurance Matters, Professional Liability, Research & Development, Risk Management | Tagged: david marcinko, Malpractice Liability, medical liability, medical malpractice, RRG |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
What You Can Do About Malpractice Insurance?
By David E. Marcinko; MBA, CMP™
Publisher in Chief
In order to contain liability overhead expense costs, all physicians should understand the dynamics of the insurance industry selling process; as malpractice and most all liability products are sold through one of three agency avenues.
For more information:
Link: http://www.podiatrytoday.com/article/2221
Any other thoughts?
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What is a RRG? How does it differ from a MP insurance company?
A Risk Retention Group is a liability insurance company that is owned by its members and is a byproduct of the Liability Risk Retention Act (LRRA) of 1986.
For physicians this is a way to purchase medical malpractice coverage and have more control, in that the premiums may be low through specialty-specific carriers sponsored sometimes by trade groups, with additional services such as providing risk experts that are less likely to settle lawsuits. This control often also translates into broader coverage and stability of coverage. RRG tend to be smaller however with less reserve requirements and are not covered by the State’s guaranty fund. The RRG retains the risks of the members, and often will purchase reinsurance. RRGs typically require members to capitalize the company.
A typical malpractice insurance company (Mutual or Stock) covers the risk of malpractice by the issuance of a policy, which is what covers the risk. Because the physician purchases the policy from the medmal insurance company, there is no capitalization requirements upon the doctor as those issues fall onto the plate of the medmal insurance company. Also, the insurance company is covered by a state guaranty fund and also tends to have a larger reserve requirement.
Both RRG relating to medical malpractice and insurance medical malpractice companies are required to have homogeneous members (physicians) engaged in a similar liability. Medical malpractice insurance companies and RRGs end up being regulated by the domicile state, even though the LRRA is a Federal Act.
David K. Luke MIM
Certified Medical Planner™ candidate
http://www.CertifiedMedicalPlanner.org
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