mutual comp vs reciprocal comp vs RRG
wiki says reciprocals transfer risk to other subscribers and what is the meaning of subscribers ? If it is a company, it appears to me that the risk is also transferred to the company itself but just the PH need to bear the P&L.
Also, RGG looks very similar to me. Is the difference for RGG there is no separate policy issued for each member but just that risks are pooled together?
Comments
Both reciprocal insurance companies and RRGs involve mutual risk-sharing among members, reciprocals operate through individual agreements facilitated by an attorney-in-fact where risks are directly exchanged among subscribers.
In contrast, RRGs are collective entities formed by members to self-insure, especially against liability risks, with each member being an owner and policyholder of the group. The key difference is in the structure, focus (liability for RRGs), and how policies are issued and managed within these arrangements.
Here's a bit more background that might be helpful:
Reciprocal Insurance Companies indeed involve the transfer of risk among subscribers. Subscribers are essentially the members or policyholders who have agreed to mutually insure each other's risks. In this setup, while an entity (usually referred to as an attorney-in-fact) manages the operations, the risk is technically exchanged among the subscribers themselves, not transferred to the managing entity. The company (or entity) itself doesn't assume the risk; instead, it facilitates the exchange of risk among subscribers. So, when talking about the financial outcomes (profit and loss), these directly affect the subscribers based on the performance of the collective pool of insured risks.
Risk Retention Groups share similarities with reciprocal insurance in the sense that they also involve a group of entities pooling their risks. The primary distinction lies in the structure and regulatory aspects. RRGs are specifically designed to allow members to retain and manage their own risks, particularly for liability purposes, under the Liability Risk Retention Act of 1986 in the United States. They provide a mechanism for businesses with similar risks to insure themselves under a collective entity. Unlike traditional insurance, where each member holds a separate policy from an insurer, RRG members are owners and policyholders of the group, which issues policies directly to its members. This means there is indeed a policy issued, but it's within the framework of the group's collective risk management, not from an external insurance provider.