A Risk Purchasing Group (RPG) allows like risks to be able to purchase liability insurance on a group basis. Formed by Congress in 1981, the Products Liability Risk Retention Act allowed the formation of groups 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 This federal law superseded many state insurance laws that prohibited the formation of specialized exclusive groups to purchase insurance.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. The original purpose of the law was in response to the insurance crisis on the 1980’s where certain businesses & professions were unable to purchase liability insurance at an affordable price. And in some cases were not able to purchase liability insurance at all.
Risk purchasing groups are “any group” which has as one of its purposes the purchase of liability insurance on a group basis; where it 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 (RPG) needs to be. Over time large Managing General Agencies (MGAs) have used this Federal Law to increase their bottom lines by forming RPGs to collect fees in addition to the commissions collected for the risk with little to no benefit to the insured. As the insurer does not receive a portion of the fees, these fees are not used to help pay claims. And because the fees are generally the same for every entity, smaller premium insured’s pay a larger percentage of their premium to the RPG. Even though many states prohibit charging fees on policies for admitted insurance products, the federal act that created the RPGs supersedes these state laws.
The RPG fees must be paid in order to purchase the insurance coverage from certain insurance programs.