The purpose of a Risk Purchasing Group (RPG) is 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 the formation of groups to be formed to purchase liability 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 This federal law superseded many state insurance laws that prohibited the formation of specialized exclusive groups to purchase insurance.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 casualty or liability insurance not property insurance. This was in response to the insurance crisis on the 1980’s where the availability of certain businesses & professions were unable to purchase liability insurance at an affordable price or not be able to purchase it at all.
A risk purchasing group is “any group” which has one of its purposes the purchase of liability insurance on a group basis; purchases 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.
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. As the insurer does not receive a portion of the fees, they are not used to help pay claims. And because the fees are mostly the same for every entity, smaller premium insured’s pay a larger percentage of their premium to the Risk Purchasing Group. Even though many states prohibit charging policy fees on admitted insurance products, the federal act that created RPG supersedes these state laws.
The RPG fees must be paid in order to purchase the insurance coverage for certain liability policies.