With so much focus on risk retention groups–which have more than tripled in number since 2001–purchasing groups have been overshadowed, yet formation of PGs has been on the rise for the last three years in response to the softening property-casualty market.
The Liability Risk Retention Act enabled formation of RRGs and PGs. The key difference between the two entities is that RRGs form as actual insurance companies owned by their members who retain risk. Purchasing groups, on the other hand, consist of groups of insurance buyers who transfer risk to commercial insurance companies.
PGs typically gain strength in soft markets when insurers lower rates, making liability insurance more available and affordable. Conversely, during hard markets–when insurers raise rates and restrict coverage–PG formations decline and RRG formations increase.
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