Risk purchasing groups (RPGs): how group liability buying works

A risk purchasing group (RPG) is a group of businesses with similar liability exposures that organizes to buy liability insurance together. It is a buyer, not an insurer: the group holds no risk and has no capital pool, and an insurance company writes the policy. Its value comes from the federal Liability Risk Retention Act, which stops states from blocking group purchasing or discriminating against groups, so a trade association can negotiate one program for members in many states.

If the group wants to own its insurer instead, the structure is a risk retention group. The two come from the same statute and are often confused.

What federal law requires

Under 15 U.S.C. § 3901(a)(5), a purchasing group must meet four tests:

• Purpose. One of its purposes is to buy liability insurance on a group basis.
• Members only. It buys insurance only for its group members, and only for their similar or related exposures.
• Similar or related members. The members' businesses or activities are similar or related in the liability exposures they face.
• Domicile. It is domiciled in a state.

The statute defines liability as legal liability for damages from business, products, services, premises or operations. It excludes personal risk liability and an employer's liability to its own employees, apart from the Federal Employers' Liability Act. So an RPG covers commercial general liability, professional liability, products liability and similar lines. It does not buy workers' compensation, property, auto physical damage or benefits.

Section 3903 then preempts state laws that would:

• prohibit forming a purchasing group, or prohibit members from buying on a group basis;
• make it unlawful for an insurer to offer a group advantages in rates, forms or coverages based on its loss and expense experience;
• impose a minimum membership period, a minimum number of members, common ownership or a particular legal form;
• require a set percentage of the group to buy on a group basis, or require countersignature by an in-state agent; or
• otherwise discriminate against the group or its members.

The law also limits where the group can buy. A purchasing group may not buy from a risk retention group that is not chartered in a state, or from an insurer not admitted in the state where the group is located, unless the coverage is placed through a licensed agent or broker under that state's surplus lines laws. In other words, the insurer behind an RPG is an admitted carrier, an eligible surplus lines insurer or a chartered RRG. See admitted vs non-admitted insurers: what the difference means for what that choice means for your protection.

How a group gets set up

1. Form the group in a domicile state and make sure it meets the four statutory tests.
2. Select an insurer through a broker. The broker usually markets the group's combined exposure and loss history to carriers that want the class.
3. Negotiate the program: coverage form, limits, deductibles, rates, underwriting and membership rules, loss control standards.
4. Notify each state where the group will do business. Section 3903(d) requires the notice to identify the group's domicile, the lines and classifications of liability coverage, the insurer and its domicile, and the principal place of business, with updates when they change.
5. Register and designate the commissioner as agent for service of legal process, as § 3903(e) requires, in each state.
6. Enroll members who receive an individual policy or a certificate under a master policy.

States may require agents and brokers for a purchasing group to be licensed, but cannot discriminate against nonresidents.

State rules still apply to registration

The federal law sets the framework, and each state administers its own filings. Examples from the state regulators' sites:

Because requirements differ, a group with members in many states should ask its broker for a state-by-state checklist, including whether the state's surplus lines notice must go to members and how premium taxes are paid when a nonadmitted insurer is used (see surplus lines taxes, stamping fees and diligent search).

RPG compared with the alternatives

Many association-endorsed programs run without registering as RPGs, as a master policy or a negotiated discount for members. The federal protections matter when a group wants to buy as a group across state lines on its own terms and wants states to treat it fairly. Whether registration is worth the paperwork depends on the program.

Strengths and limits

Where an RPG helps. A trade association of small businesses can combine exposure that no member could market alone. The insurer gets lower acquisition cost and loss data, and members may get coverage designed for the trade, such as products or completed operations wording that standard markets avoid. There is no capital call and no ownership stake to manage.

Where it falls short.

• You get no share of underwriting profit unless the insurer's program pays dividends, and then the dividend is the insurer's choice.
• The insurer can raise rates, tighten terms or withdraw from the class, and the group would have to remarket.
• If the insurer is non-admitted or a risk retention group, there may be no state guaranty fund backup; check the policy notice.
• Group-level underwriting rules mean the group can drop a member whose experience deteriorates.
• Pooling is not automatic: an RPG whose members have different exposures just buys a blanket program, and low-hazard members subsidize high-hazard ones.

A hypothetical example

Say a trade association of 200 independent Landscaping business insurance in six states wants general liability and umbrella coverage with a stable price. Individually, each landscaper gets quotes from different carriers with different forms. The association registers an RPG in its home state, asks a broker to market the group's combined loss history, and places a master program with an admitted carrier that agrees to extend a loss-control credit to members that complete annual equipment and chemical-application training. The RPG files its notices in the other five states and renews each year. Members receive certificates and still need additional insured endorsements for their customers' contracts, since the group arrangement does not change how certificates of insurance work. This is an invented scenario, not a quote or an actual program.

Questions to ask before joining

1. Who is the insurer, and is it admitted, a surplus lines insurer or an RRG? That decides whether a guaranty fund stands behind your policy.
2. How is the rate set: pooled for the group, experience-rated for each member, or a mix?
3. What are the eligibility and cancellation rules, and can the group drop you after a claim?
4. How long is the program committed, and what is the plan if the insurer leaves?
5. Does the policy provide the endorsements your customers and leases require?
6. Who adjusts claims, and is defense inside or outside limits?

Key takeaways

• A risk purchasing group is a buyer that purchases liability insurance for members with similar exposures; it does not insure risk.
• The federal Liability Risk Retention Act stops states from blocking or discriminating against group buying, but states still require notice and registration.
• The insurer must be admitted, an eligible surplus lines insurer or a chartered RRG; RPGs cannot buy workers' compensation, property or benefits.
• An RPG requires no capital and gives no ownership, so members forgo underwriting profit but also avoid a capital call.
• Check the insurer's status, rate basis, exit terms and endorsements before you rely on the program.