RRG 2002 Premium Projected Over $1 Billion Along with the dramatic rise in the number of risk retention group formations, the final tally for RRG annual premium for 2002 is projected to soar to well over a billion dollars, with increases in almost all business areas, according to the Risk Retention Reporter's annual survey.

Gross written premium for 2002, based on projections provided by RRGs, is estimated to total $1.28 billion, an increase of $284 million (30.1 percent) over the previous year and 53 percent higher than the 2000 premium of $803 million. The average premium per RRG is projected to increase by 18.6 percent to $15.5 million, while the number of insureds is expected to grow to 182,600, a 5.7 percent gain.

The largest premium producing sectors are healthcare, professional services, and government and institutions, which produce the lion's share of RRG premium. Collectively they represent more than 84 percent of RRG premium.

Premium projected for 2002 for healthcare is $535 million, or 43 percent of the total. The RRGs classified in this business area serve hospitals, physicians, dentists and health maintenance organizations, with hospitals accounting for almost half of all the RRGs.

The second largest RRG business area in terms of premium is professional services, with 2002 annual premium projected to be $356 million, or 29 percent of the total. Almost half of the RRGs in this business area provide liability coverages for attorneys.

A significantly smaller market segment, but still with $146 million in 2002 projected premiums, or 12 percent of the total, is government and institutions. RRGs in this business area insure educational institutions, religious institutions, public entities and non-profit organizations.

The remaining business areas, representing 16 percent of RRG premium ($191 million), include property development, manufacturing and commerce, environmental, transportation, and leisure.

Clues about where RRG growth will occur in the future can be gleaned from the business areas in which RRGs licensed in the first two months of 2003 have formed. Of the eight new RRGs listed in Risk Retention Reporter monthly updates, all but one is classified in the Healthcare business area.

Looking more closely at the sub-areas in which these RRGs operate, we find that half are providing liability coverages for hospitals and physicians, two are insuring long term care facilities, and one is insuring warranties issued by roofing manufacturers.

Given the unaffordability and unavailability of liability insurance facing the nation's physicians, hospitals and long term care providers, RRGs in these sectors will continue to form. Even if tort reform is enacted, any relief such reform provides will take time to flow into the system. In the meantime, many healthcare providers will turn to RRGs as a solution to their current liability problems.

Another area of growth will be in RRGs that insure liability stemming from contractual arrangements. Thirteen RRGs currently offer contractual liability insurance for providers of auto extended warranties and service contracts. RRGs insuring other types of contractual liability are also forming.

In addition to the RRG formed this year to provide coverage for manufacturers offering roofing warranties, another RRG, formed late last year, is insuring the liability arising from debt cancellation agreements issued by banks. Given the size of this market, estimated at more than $5 billion, and the change in rules issued by the Office of the Comptroller of the Currency (OCC) last September, more RRGs can be expected to form to insure liability arising from these types of agreements.

Other business areas in which RRG growth can be expected are transportation and property development, with truckers finding liability coverage increasingly expensive, and contractors finding liability coverage increasingly unavailable and unaffordable. In addition, RRGs will be formed from purchasing groups that have either lost their insurers, found the coverage unaffordable, or want to take control of well-established insurance programs.

With the number of RRGs at a historical high, and no end to the hard market in sight, the number of RRGs at the end of 2003 will grow to more than 100. With this growth in RRGs, premium can be expected to continue its upward rise, approaching the $2 billion mark in the not-too-distant future.

Karen Cutts is managing editor and publisher of the “Risk Retention Reporter,” a monthly newsletter based in Pasadena, Calif., that she founded shortly after passage of the 1986 Liability Risk Retention Act.

Reproduced from National Underwriter Edition, March 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.

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RRG 2002 Premium Projected Over $1 Billion

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