The purpose of a Risk Purchasing Group (RPG) was to allow like risks to be able to purchase liability insurance on a group basis. In 1981 Congress enacted the Products Liability Risk Retention Act that allowed for groups to be formed purchasing liability (casualty) insurance on a group basis. This federal law superseded many state insurance laws that prohibited the formation of specialized exclusive groups to purchase insurance. The law only applies to liability insurance not property insurance. This law was in response to the 1980’s insurance crisis where the availability of casualty insurance was a serious problem. Many businesses & professions were unable to purchase liability insurance at an affordable price or in some cases not purchase it at all.
A risk purchasing group is ‘any group’ which one of its purposes is the purchase of liability insurance on a group basis; purchasing such insurance only for its group members and only to cover their similar or related liability exposure; is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and is domiciled in any State. That is a mouth full. For example, law firms could in theory band together for the purpose of purchasing attorney malpractice insurance by forming a ‘Risk Purchasing Group’. That Risk Purchasing Group would then contract with an insurer to provide insurance.
The law does not specify the type of entity that a Risk Purchase Group needs to be. Over time large Managing General Agencies (MGAs) have used this Federal Law to increase their bottom lines by forming Risk Purchasing Groups to collect ‘fees’ in addition to the commissions they also collect for the risk with little to no benefit to the insured. The MGA contracts with the insurer to provide malpractice insurance coverage, in most cases, solely through the MGA’s risk purchasing group.
As the insurer does not receive a portion of the ‘fees’, they are not used to help pay claims. And because the ‘fees’ are the same for every entity, smaller premium insureds pay a larger percentage of their premiums to the Risk Purchasing Group as a ‘fee’. To get access to the contracted insurer, you must ‘pay to play’. These ‘fees’ must be paid in order to purchase insurance coverage for a specific insurer’s malpractice insurance policies.