He said that his companys managers have noticed the increase in risk retention groups in Vermont, Bermuda and South Carolina, but that the expansion is more apparent in some domiciles than others.

South Carolina, Mr. Osborne said, has overtaken Hawaii as a center for RRGs. (According to A.M. Bests Captive Center Online Directory, South Carolina has 19 RRGs.)

USA Risk Group announced that the Saint Lukes Health System RRG, which it manages, was licensed in South Carolina on July 31.

Vermont, the largest U.S. domicile, is a place “where you can still do RRGs,” but he explained that some of the newer domiciles, such as Montana, Arizona and South Carolina, are ideal for some smaller groups because they dont require as much capitalization as Vermont,

Mr. Osborne said the domiciles have learned to be thorough in their investigations. Early on, according to Mr. Osborne, South Carolina had licensed an RRG “that was a mistake.”

As a result, he said, most new domiciles are savvier, requiring more than just a business plan. “They want to look at the National Association of Insurance Commissioners rules.” But most importantly, “theyre willing to work with you.”

South Carolina, he noted, has long since proved itself as a reputable domicile, so much so that USA Risk Group now has an office in Charleston, S.C.

One of the reasons organizations are forming RRGs, he said, is the lack of fronting companies and the higher cost of fronting. The other driver, he said, is “complete lack of availability, similar to the way it was in the 80s.”

Doctors groups, certain trucking classes and nursing homes have “no coverage options, while RRGs have created an option,” he said.

In Vermont, Leonard Crouse, Vermont deputy commissioner of captive insurance for the Vermont Department of Banking, Securities & Health Care Administration, sees different trends.

After a spate of medical malpractice captives and risk retention groups formed last year, the trend is once again “back to basics,” Mr. Crouse said. He added that more pure captives are being formed for general liability, auto liability and workers compensation coverages.

Still, Mr. Osborne highlighted some market conditions that he says are conducive to alternative risk transfer solutions for medical malpractice. He related that some doctors groups have reported paying coverage as high as “$100,000 for an obstetrician. For 60 doctors that would be $6 million, and that group has never had more than $1.5 million in claims in a year.”

State law in Florida, he added, only requires $250,000 per occurrence and $750,000 annual aggregate. He noted that seven or eight claimswhat you might typically see for 60 doctorswould amount to $1.5-$2 million.

A group paying $60,000 per doctor still amounts to “a very viable program,” he said. Whats more, some of these groups “are becoming completely self-insured” because of the expense and scarcity of reinsurance.

By being an RRG, he concluded, the “fronting need goes away and they are still meeting the requirement that the company providing the coverage is authorized to do business in the state.”

Mr. Osborne said that USA Risks client, Saint Lukes Hospital in Kansas City, Mo., found that pricing for coverage continued to rise, even though the number of claims stayed the same.

The hospital managers had an active loss control and safety program and felt “it was time to take matters into their own hands because the marketplace was not giving them any credit for their efforts,” he said.

The company formed an RRG and domiciled in South Carolina. He noted that Kansas, which the hospital also serves, has a state fund that “kicks in over $200,000.” So the group is retaining the first $200,000 in Kansas.

To cover its Missouri risk, the group purchased malpractice coverage for occurrences of more than $250,000, with a $1 million limit, he noted.

“They chose South Carolina because they got a warm reception there,” he said. South Carolina proved to be “quite keen to take on risk retention groups for medical groups,” and the location is convenient.

Clayton Ingram, director of business development, alternative risk transfer services for the South Carolina Department of Insurance, said the three-year-old domicile, which licensed 32 captives in 2002, so far has licensed 20 “good, solid captives” in 2003. (Mr. Ingrams figures include RRGs.)

In Vermont, Mr. Crouse reported that 43 captives have been formed and that 11 applications are pending, which he characterized saying they are “as good as gold.” According to his figures, last year the total number of Vermont-based captive insurers was 70. The total number of captives licensed in Vermont is 640.

Mr. Crouse said the captive department has hired two new examiners, bringing the total to 20 on staff.

“Most states contract out examiners,” according to Derek White, director of captive insurance. “Having the examiners on staff means more efficiency and less expense for new captives.”

He said it typically takes two staff members week to process a new captive in Vermont, whereas “anywhere else it might take a month.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 18, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.