Product Update

The Liability Risk Retention Act of 1986 Discussed in Risk Financing

In response to extremely difficult market conditions for liability insurance at the time, Congress passed the Liability Risk Retention Act of 1986. This Act expanded the use of risk retention groups (RRGs) and purchasing groups (PGs), which were authorized by earlier federal legislation (the Product Liability Risk Retention Act of 1981). Congress believed such mechanisms would increase market capacity, promote more competition between insurers, and ultimately reduce the cost of liability insurance.

Despite several attempts over the past 30 years, there have been no significant changes to the legislation. This fact combined with consolidation among participants, abundant capacity in the commercial liability insurance market, and other factors have suppressed interest in forming new groups. However, the total premium collected by active RRGs alone has grown steadily to over $3 billion annually. In addition, current estimates indicate a total of over 900 active PGs. This section of Risk Financing outlines the history and provisions of the Liability Risk Retention Act of 1986 and the ongoing challenges to those who utilize it.

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