Is a risk retention group right for your medical malpractice insurance needs?

As medical malpractice premiums continue to rise and some medical malpractice insurers have exited the marketplace, medical practices and facilities increasingly have been turning to risk retention groups (RRGs) as an alternative to traditional insurance companies. The continued growth of RRGs has contributed to the increased availability of medical liability options, meaning the possibility of lower premiums and more competition as well as better coverage and greater choice for physicians and medical facilities. Deciding which course of action you should take for your practice requires understanding what an RRG is and knowing the differences between RRGs and traditional insurers, among other information.

WHAT IS AN RRG?

An RRG is a company formed by a group of similar professionals or businesses with similar risk exposures to self-insure the professional and commercial liability risks of its members. (If you are interested in an RRG, consider joining one before starting one. Start-up costs can be exorbitant and usually make sense only for very large medical practices or significant numbers of practices banding together.) The Liability Risk Retention Act of 1986 authorized the use of RRGs and established a federal regulatory framework that partially pre-empts state insurance law, permitting RRGs to insure members in all states as long as the RRG is chartered and regulated in one state, the RRG’s domiciliary state, and registers in the states where it operates.

An RRG’s state of domicile does not have to be a state where its insureds practice. In fact, most RRGs choose to domicile in a few states for a variety of financial and regulatory reasons, including lower statutory minimum capital and surplus requirements as well as the states’ collective experience dealing with RRGs. Ninety-five percent of the premiums written by RRGs are written outside their states of domicile.

WHY SOME RESIST

RRGs and other “alternative” insurance methods account for the majority of the medical malpractice premiums written. RRGs have become a significant part of the medical malpractice landscape-261 now exist, according to the Risk Retention Reporter-but many hospitals and medical facilities do not accept them as proof of coverage when making employment or privilege decisions-despite the fact that many of these same hospitals and medical facilities operate under such arrangements.

Many RRGs choose not to be rated by A.M. Best, the company that rates most traditional insurance companies, because they perceive the process as costly and having significant barriers. Instead, many RRGs seek a rating by Demotech. That company offers what it calls a financial stability rating, which is deemed largely comparable to an A.M. Best rating but better suited to smaller, non-traditional insurers.

The table on the opposite page details some of the differences between RRGs and traditional insurance companies. Congress proposed legislation in 2011, known as the Risk Retention Modernization Act, which would standardize corporate governance of RRGs and create federal arbitration to settle disputes between RRGs and states. Later that year, the Government Accountability Office published a report on RRGs that made recommendations to Congress and accreditation bodies regarding corporate governance and oversight of RRGs. What actions will be taken remains to be seen.

FOR MORE INFORMATION

You can learn more about RRGs in general and RRGs operating in your area in particular from state and local insurance departments as well as from the National Risk Retention Association (www.nrra-usa.org) and the Risk Retention Reporter (www.rrr.com).

Klein is an associate and Cepelewicz is a partner at Garfunkel Wild with offices in Great Neck, New York; Hackensack, New Jersey; and Stamford, Connecticut. He is a Medical Economics editorial consultant. O’Connor is senior vice president of People’s United Insurance Agency, Bridgeport, Connecticut. Do you have a health law question that you would like one of our experts to address in this column?mSend it to medec@advanstar.com. Also engage at www.twitter.com/MedEconomics and www.facebook.com/MedicalEconomics.