One way to insure your liability insurance risks is to join a risk retention group. A risk retention group or RRG is group self-insurance. You share the risk with other business owners who are the same line of business as you are.
As an RRG member, you are both a policyholder and an owner along with all other members insured in the group. As an RRG member, you could potentially face a cash call at some point if claims expenses exceed the premiums that have been collected. There is typically no claim guaranty fund protection for RRG’s in the event of insolvency.
On the plus side, a well managed RRG can provide a “safe harbor” from insurance marketplace swings.
To join a risk retention group you will need to fill out an application, sign an operating agreement and be approved by the RRG manager.
If you are considering joining an RRG you should request at a minimum the most recent CPA audited financials, the member operating agreement and the provisions for cash calls and assessments. Better yet, review the past five years of financials to look for the trends of how the group has been performing over time.
If the RRG you are considering won’t provide CPA audited financials and a copy of the operating agreement for you to review, don’t join the group.
Also, RRG membership requires active participation. Go to the board meetings. Review quarterly financials and talk to the RRG manager on a regular basis.