Risk Purchasing Groups are a common insurance industry vehicle and we provide you here with answers to Frequently Asked Questions.
What is a Risk Purchasing Group?
A Risk Purchasing Group (‘RPG’) is an entity that is created in order to facility group insurance purchasing. RPG’s enable unrelated entities with similar loss exposures the power to purchase liability insurance as a group.
Until the early 1980’s the purchase of property & casualty insurance on a group basis was generally forbidden even though this practice was common in life and accident & health insurance. However, a capacity crisis at the dawn of the 1980’s made the purchase of products liability insurance extremely difficult and prohibitively expensive. In response, Congress passed The Product Liability Retention Act of 1981, which permitted group purchase of products liability insurance. As the decade progressed professional liability insurance followed in the footsteps of products liability, becoming increasingly pricey and scarce and Congress again addressed the crisis by expanding the original legislation with the Liability Risk Retention Amendments of 1986, to offer, among other things, the group purchase of commercial liability insurance.
Why buy insurance through a Risk Purchasing Group?
Risk Purchasing Groups are designed to leverage group purchase dynamics so that members can effiiciently purchase broader limits than they might achieve individually, along with more advantageous pricing than they would merit on a standalone basis. Because members of the RPG have similar loss exposures, insurers can rate the group on an aggregate basis, thus establishing economies of scale.
Is a Risk Purchase Group the Same Thing as a Risk Retention Group?
No. Unlike a Risk Retention Group an RPG is not a risk sharing vehicle like a captive; rather, it is a pool of similarly situated exposures that seek to purchase insurance together.
Who Administers Preferred’s RPG’s?
IRF Administrators, LLC acts as the administrator and among other things handles the billing associated with placements.
Do policyholders in an RPG share a single limit?
No, in all of Preferreds’ RPG’s, each insured has it’s own limits and that limit is not shared with other group members. One insured’s limit cannot be impaired by virtue of another’s loss.
If one group member suffers a big loss, will other member premiums increase?
One member’s loss will not directly impact the pricing of another’s; rather, underwriters will consider the loss experience of the group as a whole when determining rates.
Does a member need to make any long-term commitment to the RPG when jonining?
RPG members are free to come and go as they please. New members who qualify for coverage under the RPG can join at any time and RPG members may leave at will by voluntary resignation or non-renewal as set forth in the bylaws.
Are group members responsible or liable for the losses of others?
No, under an RPG members do not assume or indemnify each other’s losses.
If another member fails to pay their premium, will the coverage be canceled?
No. Cancellation for non-payment of premium applies on an insured by insured basis.
Must all members have the same policy term?
No. Each insured will be given it’s own policy term within the period of the RPG master policy (which is typically a rolling two year policy.)
Do members receive individual policy forms?
Each insured will receive a copy of the master policy supplemented by a certificate evidencing details particular to each individual insured such as Insured Name, Address, Underlying Limits and Applicable Coverages.
What are Membership Fees For?
Membership fees address administrative, corporate and management expenses associated with the establishing and maintaining the RPG.
How Are Risk Purchasing Groups Regulated and by Whom?
RPG’s are governed by federal statute and are exempt from state laws and regulations that could subvert purpose of the RPG or otherwise discriminate against RPG’s or their members. RPG’s are required to register with each state in which they do business and the requirements of same will vary from state to state. In general, RPG’s are subject to multi-state rate and filing requirements, but a few states will exempt non-domicilary purchasing groups from this burden. Ultimately, insurance that is purchased is placed with a carrier and insureds should look to the Insured’s rating to reflect the financial strength of the carrier writing the master policy for the RPG.