What is a Risk Purchasing Group?

Risk Purchasing Groups (RPG) were made possible through the passing of the Federal Liability Risk Retention Act of 1986, with the intent to provide affordable liability insurance to homogeneous groups with similar or related liability risks. This federal law made it possible for businesses, associations, professionals, and municipalities to obtain liability coverage, where it was previously too expensive for most to afford.

How is a Risk Purchasing Group established?

RPGs are tailored to suit the demographic of the homogenous group. For instance, RPGs may be created to insure groups of food truck operators. An RPG could further define itself as a group of food trucks that serve alcohol or maintain their own outdoor seating. Focusing on these finer points can create more uniformity within the group, making the risk easier to define, evaluate, and insure.

Once the Risk Purchase Group is established, it may seek insurance coverage as a single entity. RPGs are issued a Master Policy, and certificates are issued to individual members of the RPG. Individuals covered under a master policy are often referred to as certificate holders or “cert-holders” for short.

What’s the difference between a Risk Purchasing Group and a Risk Retention Group?

Both Risk Retention Groups and Risk Purchasing Groups were made allowable by the same federal Act of 1986, but there are critical differences between them. The main difference is that Risk Retention Groups (RRGs) retain and bear the burden of covering claims, while RPGs do not. RPGs purchase outside insurance from an insurance company. RRGs carry the risk of loss themselves and act as their own insurer.

What are the benefits of creating an RPG?

1. Bargaining Power. First and foremost, the primary advantage of creating an RPG is bargaining power. By creating a ‘group’ of consumers, the insureds can use their collective purchasing power to petition carriers to create a more custom and favorable insurance policy specific to their industry. Typically this will include unique coverages/exclusions, and of course, better pricing.

2. Streamline tax filing and reporting. Another benefit of forming an RPG is the ability to streamline tax filing and reporting in many areas of the country. Some states allow you to lump certificate holders into a single filing, thus savings countless hours of reporting time. This time savings is especially advantageous in the excess and surplus lines space, where taxation and reporting requirements are cumbersome and vary from state to state.

3. Bypass many fee restrictions. Another attractive benefit to the RPG structure is bypassing many of the fee restrictions that states impose since RPGs are regulated at the federal level rather than the state level.

What are the challenges of operating a Risk Purchasing Group?

Many agencies are eager to jump into the RPG space due to the benefits and opportunities. Still, it’s essential to keep in mind that forming and operating a Risk Purchase Group can be pretty challenging. High costs of start-up and complex state registration requirements can be barriers to entry, not to mention the ongoing reporting and maintenance costs.

Who exactly is insured by the Master Policy?

It might sound strange to ask, “Who is the insured?” but, as with most answers to RPG and surplus lines questions, it depends on the state.

For a Risk Purchase Group Master Policy, the insured is usually the RPG as a single entity. If this held for all 50 states, reporting would be a breeze! In these “Master Policy Reporting States,” one report covers many individual cert holders in a single filing.

However, this isn’t the case for many states. States like California, New York, and Texas, for instance, are considered “Certificate Filing States.” These states insist the insured is the individual certificate holder. Therefore, instead of reporting a single Master Policy for the RPG, each respective certificate holder must be reported separately. RPGs can have tens, if not hundreds, of cert-holders, so you can see how this can quickly add up to stacks of paperwork.

Fortunately, most states consider your RPG as a single insured. In these cases, paperwork is minimized, and the process is much simpler. In these “Master Policy Reporting States,” the total premium written during a given month would be reported as an endorsement to the Master RPG Policy. This is a much simpler process, which is why many Managing General Agents (MGAs) see the RPG as an efficient mechanism to handle large groups of insureds.

With any standard policy, showing Diligent Efforts or obtaining declinations from the admitted markets grants an insured entry into the Non-Admitted or Surplus Lines market. This same practice also applies to our Master RPG policies.