A risk purchasing group is an association of businesses with similar liability exposures that join together to buy commercial liability insurance as a single block, usually at better rates and with broader terms than any member could get alone. These groups operate under the Liability Risk Retention Act of 1986, codified at 15 U.S.C. § 3901 and following sections, which preempts state insurance laws that would otherwise block group buying arrangements.1Office of the Law Revision Counsel. 15 USC 3901 – Definitions The group itself does not insure anything. It negotiates and purchases coverage from an existing commercial carrier on behalf of its members.
Purchasing Group Versus Retention Group
The Liability Risk Retention Act created two separate mechanisms, and they are often confused. A risk retention group forms its own insurance company, owned by its members, that directly underwrites policies and pays claims. A risk purchasing group buys coverage from a conventional insurer; it is a buyer, not an insurer.1Office of the Law Revision Counsel. 15 USC 3901 – Definitions
That structural difference drives the regulatory treatment. Because a retention group is an actual insurer, it has to meet capital, solvency, and chartering requirements in its home state. A purchasing group faces lighter regulation because the commercial carrier behind it already meets those standards. The tradeoff is less control over policy terms and full dependence on the chosen insurer’s financial health.
Who Can Join and What the Group Can Insure
Federal law requires every member to be engaged in similar or related business activities with respect to the liability the group is insuring.1Office of the Law Revision Counsel. 15 USC 3901 – Definitions The whole point is to pool homogeneous risk. A group formed around medical practices cannot admit contractors or manufacturers into the same pool.
Coverage is confined to liability insurance arising from business operations, trade, products, professional services, or premises. The statute specifically excludes personal risk liability, meaning anything arising from personal, family, or household activities. Employer liability to employees is also excluded, with a narrow carve-out for claims under the Federal Employers’ Liability Act.1Office of the Law Revision Counsel. 15 USC 3901 – Definitions
In practice, that means a purchasing group cannot be used to buy personal auto, homeowners, health insurance, or workers’ compensation for its members. If your organization needs any of those lines, this is not the right structure.
What States Cannot Do
The real force of the federal statute is in what it stops states from doing. Under 15 U.S.C. § 3903(a), a purchasing group is exempt from any state law that would:
- Prohibit the group from forming or operating in the state.
- Block an insurer from offering group-basis pricing based on the group’s own loss and expense experience, even where that advantage is not available to other buyers.
- Require the group, or its members, to have existed for a minimum period before buying insurance.
- Require a minimum number of members, common ownership, a particular legal form, or that some percentage of the group buy coverage on a group basis.
- Require policies to be countersigned by a resident agent.
- Otherwise discriminate against the group or its members.
These exemptions do not leave purchasing groups unregulated. States keep authority over premium taxes, agent licensing, and the registration process itself. Preemption just prevents a state from shutting a properly formed group out of its market through discriminatory rules.
Registration and Ongoing State Requirements
Before operating in a state, a purchasing group must file a notice of intent with that state’s insurance commissioner. The federal statute requires four pieces of information: the state where the group is domiciled, the specific lines and classifications of liability insurance the group plans to purchase, the identity and domicile of the insurance company providing the coverage, and the group’s principal place of business.2Office of the Law Revision Counsel. 15 USC 3903 – Purchasing Groups Registration fees in the $100 to $250 range are common, though some states charge more. The group cannot enroll members or write business in a state until that state has processed its filing.
The group also has to designate the insurance commissioner in each state where it operates as its agent for service of process, so courts can deliver summons or formal notices to the group without a physical office in the state.2Office of the Law Revision Counsel. 15 USC 3903 – Purchasing Groups
Buying From a Non-Admitted Insurer
A purchasing group cannot buy insurance from a non-admitted insurer, meaning one not licensed in the group’s state, unless the transaction runs through a licensed agent or broker operating under that state’s surplus lines laws.2Office of the Law Revision Counsel. 15 USC 3903 – Purchasing Groups Many purchasing groups end up in the surplus lines market because their specialized risks do not fit standard admitted carriers’ appetites. The surplus lines broker handles the additional filings and any diligent-search requirements the state imposes.
Agent and Broker Licensing
States can require anyone acting as an agent or broker for a purchasing group to hold a license. What they cannot do is impose qualifications or requirements that discriminate against nonresident agents or brokers.2Office of the Law Revision Counsel. 15 USC 3903 – Purchasing Groups A licensed nonresident broker from one state can place coverage for a purchasing group in another state as long as the broker meets the general licensing standard. The group should verify its broker’s multistate licensing before expanding, because a lapse on the broker side can hold up the group’s own registration.
Premium Taxes
Federal preemption does not reach premium taxes. Every state where the group has members can tax premiums collected for coverage of risks located in that state. Rates generally fall between 3% and 5% of gross premiums, with structures varying by jurisdiction.3National Association of Insurance Commissioners. Model Law Chart – Premium Taxes – Risk Retention and Risk Purchasing Groups
Responsibility for payment follows a priority chain. The insurer owes the tax first. If the insurer does not pay, the agent or broker is next. If neither pays, the purchasing group itself is liable, followed by individual members.4National Association of Insurance Commissioners. Risk Retention and Purchasing Group Handbook The broker or insurer usually handles remittance in practice. The group should still confirm that taxes are actually being paid, because falling behind is one of the fastest ways to trigger regulatory action.
Changes and Renewals
Registration is not a one-time event. Most states require annual renewal filings to confirm the group still meets eligibility standards and that its membership has not drifted into unrelated industries. Missing a renewal can mean losing active status, and reinstating an inactive group often means starting the registration process over, initial fee included.
Federal law also requires the group to notify the insurance commissioner in each state of any change to the four items in its original notice: its domicile, the lines of coverage it buys, the insurer providing coverage, and its principal place of business.2Office of the Law Revision Counsel. 15 USC 3903 – Purchasing Groups The statute does not set a deadline, but regulators do not react well to learning of material changes months after the fact.
No Guaranty Fund Safety Net
This is the single most important point for anyone considering membership. When a purchasing group obtains coverage from a non-admitted insurer or a risk retention group, those policies are not protected by state insurance guaranty funds.4National Association of Insurance Commissioners. Risk Retention and Purchasing Group Handbook If the carrier becomes insolvent, there is no safety net to pay outstanding claims. Members are left with an unpaid loss and, at best, a claim in the insurer’s receivership.
When the group buys from an admitted insurer instead, guaranty fund protection may apply, but only for risks located in the state where the fund operates.4National Association of Insurance Commissioners. Risk Retention and Purchasing Group Handbook Choice of carrier is therefore not just a pricing decision. It directly determines whether members have any insolvency protection.
The NAIC model act requires purchasing groups using non-admitted insurers or risk retention groups to disclose to every member with a risk in the state that the coverage is not protected by a guaranty fund and that the insurer may not be subject to all of the state’s insurance laws.4National Association of Insurance Commissioners. Risk Retention and Purchasing Group Handbook If you are evaluating a purchasing group, ask whether the underlying carrier is admitted or non-admitted in your state. If non-admitted, examine the carrier’s financial strength carefully, because the insolvency risk is yours.