RRGs Rescue Health Care Providers
By Karen Cutts
Healthcare providers in the United States are increasingly turning to the Liability Risk Retention Act as a solution to the medical malpractice crisis confronting them.
Since the beginning of 2001, 10 risk retention groups have formed to provide liability insurance coverage to Pennsylvania physicians and hospitals.
Healthcare providers in other states are also turning to RRGs to provide liability coverages to insure physicians, hospitals, nursing homes, and health maintenance organizations.
Why?
The answer lies in the Liability Risk Retention Act, a federal law enacted in 1986 to address the "liability crisis" of the mid 1980s.
Under the LRRA, an RRGan insurance company owned by a homogenous group of insuredsis regulated by one state, its state of domicile.
Unlike traditional insurance companies that must be admitted to operate in a state or authorized as a surplus lines insurer, an RRG can begin operating immediately in other states once it receives its license from its "home" state and complies with certain LRRA notice requirements and state laws.
RRGs typically form under the captive laws in states, which have such laws. Captive laws are attractive because of their lower capital and surplus requirements and greater flexibility.
A survey conducted by the Risk Retention Reporter in 2002 determined that of the 22 states with captive laws, 14 provide for RRG formation and six do not, while two states neither prohibit nor provide for RRG formation under their captive laws.
The survey found that the minimum capital and surplus requirements for RRGs under states' captive laws are typically $500,000 for stock and mutual companies and either $500,000 or $1 million for reciprocals.
Because an RRG is regulated by its domiciliary state and not by the states in which it operates, its capital and surplus and other insurance requirements are determined by the state of domicile state and not by non-domiciliary states.
Seven of the 10 RRGs formed over the last year to meet the liability needs of Pennsylvania's healthcare providers are regulated by Vermont and three by South Carolina.
As of the end of January 2003, there were 94 RRGs, the highest number of RRGs ever operating since passage of the LRRA 17 years ago.
Given the state of today's hard insurance market, it is likely that RRGs will number well over 100 by the end of this year, generating premium well over $1 billion.
Karen Cutts, J.D., is managing editor and publisher of the "Risk Retention Reporter," a monthly newsletter based in Pasadena, Calif. that she founded shortly after the passage of the 1986 Liability Risk Retention Act.
Reproduced from National Underwriter Edition, February 3, 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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