There are a number of companies that believe the managing and financing of certain risks are a necessary and important aspect of their business plan. Companies that engage in these risks on a frequent basis may need to explore options beyond traditional insurance offerings, which include standard liability insurance. One such option is available through the use of risk retention groups as a part of captive solutions. In this group, the company is both a policy holder and an owner, forming a cooperative of liability coverage with a number of other businesses in similar positions.
Positives and Negatives Exist for Risk Retention Groups
There are a number of reasons why companies would choose to engage in a cooperative of this sort, yet there are also a number of drawbacks as well, though they are certainly not enough that they should serve to dissuade interested parties. The benefits are many, including:
- Elimination of market residuals
- Members maintain control of litigation and risk management
- Market stability is established
- No need for licensing in multiple states
Though the positives outweigh the negatives by a significant margin, the notation of the potential drawbacks still warrants some attention:
- Coverage is for liability only
- There is no guarantee that funds will be available
As with any action taken by a company, the risks and rewards should be thoroughly weighed before a decision is made. Regardless, the use of captive solutions, such as a risk retention group, provides an excellent alternative to traditional insurance options.