With the industry focused on risk retention groups, little attention has been given to purchasing groups–the other entity enabled by the Liability Risk Retention Act.
In fact, the rise in PG formations since 2005 could be viewed as a reaction to a steadily softening market.
In contrast to risk retention groups, formed as insurance companies owned by their insureds, PGs are comprised of commercial insureds–of public and private entities–who band together to obtain liability coverage from admitted insurance companies, surplus lines carriers or RRGs.
From 1990 to 2000, with the exception of one year, PG formations consistently outnumbered PG retirements.
In 2001 that trend reversed, as retirements outstripped formations and remained in that pattern for the next three years through 2004.
In 2005, as the commercial property-casualty insurance market softened, PGs began to grow, with formations once again outnumbering retirements.
Over the last five years, the number of PG formations has steadily increased, while PG retirements have consistently declined during the same period.
While PGs have not regained the dramatic numbers seen during the soft market years of the 1990s–when more than 100 PGs were formed in each year from 1997 to 1999–they nonetheless have made a comeback. They have shown steady growth over the last five years, ending 2008 with the highest number of PGs ever achieved, at 778.
The business areas that have shown the greatest growth since 2005 are:
o Professional Services–38 PGs were formed, providing liability coverage for architects and engineers, attorneys, financial planners, funeral directors, insurance professionals, and stockbrokers.
o Property Development–37 PGs were formed, providing liability coverage for contractors, landowners and developers, real estate professionals, and property owners and managers.
o Health Care–37 PGs were formed, providing liability coverage for hospitals and affiliates, nursing homes, other health care practitioners, and physicians.
o Transportation–22 PGs were formed, providing liability coverage for commercial vehicles, port operators, and trucking owners and operators.
PGs offer significant benefits for all parties to the transaction.
o For insureds, they offer the ability to negotiate tailor-made coverages at favorable rates with insurers.
o For insurers, PGs offer the ability to achieve economies of scale, writing profitable programs while lowering costs and increasing service to insurance buyers.
o For agents and brokers, PGs offer the ability to expand existing programs and initiate new ones for select books of business.
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