Frequently Asked Questions

What does it mean to be a risk retention group?
What are the licensing expectations?
What are the federal requirements of an risk retention group?
What are the benefits of being in a risk retention group?

1. What Does It Mean to Be a Risk Retention Group?

History: At the beginning of 1980, two crises for liability coverage were developing: one with products liability and one with professional liability. Product manufacturers and health care providers were facing what is called a “hard market”, meaning that options for purchasing competitively priced and affordable insurance coverage from commercial insurers were difficult.

In 1981 a federal act called the Risk Retention Act was passed in response to the decreasing availability of products liability coverage. The act allowed organizations within the same industry to establish their own mutual risk financing organization (a risk retention group) or a buyer’s cooperative (a purchasing group).

In 1986 the act was expanded to include all types of liability insurance except workers’ compensation and personal liability. The act was renamed The Liability Risk Retention Act of 1986. California Healthcare Insurance Company, Inc., A Risk Rentention Group (CHI) was created under this act.

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2. WHAT ARE THE LICENSING EXPECTATIONS?

The Liability Risk Retention Act of 1986 only requires a risk retention group to be licensed in one state in order to underwrite risks in other states. CHI is licensed (domiciled) in the state of Hawaii. Hawaii was selected as the state because, in 1988, when the founding hospitals of CHI were seeking a solution to the hard market, Hawaii offered the best option for creating CHI. Hawaii’s Department of Insurance is accredited by the National Association of Insurance Commissioners (NAIC).

The issue of a “one state” requirement by the act is important to remember because sometimes vendors and others working with a CHI insured will do a licensing search on CHI and assume the company is not licensed because the domicile is not in California. CHI is “registered” for business in California and Nevada.

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3. WHAT ARE THE FEDERAL REQUIREMENTS OF A RISK RETENTION GROUP?

Federal Requirements of an (RRG)
The following are key requirements of a risk retention group:

All insureds must be owners and all owners must be insured by the RRG.
Membership is limited to businesses engaged in similar business.
A plan of operation that describes coverage, a rating system, lines of insurance, etc. must be on file in each state where operating.
There must be minimum participants, minimum premium volumes and quality loss experience being provided.
Annual audits must be made by an independent public accountant.
Annual financial statements must be filed with the chartering state & others, including A.M. Best.
There can be no discrimination against a RRG. There is no liability for members under collusion or anti-trust statutes.

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4. WHAT ARE THE BENEFITS OF BEING IN A RISK RETENTION GROUP?

Benefits of Risk Retention Groups
As a risk retention group, CHI is an alternate risk financing mechanism that is meeting the needs of its members. The following are a few key benefits CHI members have experienced:

Members “own” the insurance company and brokerage company profits.
Reinsurers are more attracted to CHI than they would have been to the individual members.
Rate stability is occurring over the long term.
Members are able to obtain better and cost effective risk management and claims services.
CHI also owns the brokerage, Optima, which has provided additional risk financing solutions.
CHI and Optima have better bargaining power than an individual hospital.

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