FREQUENTLY ASKED QUESTIONS
ORGANIZATION
A risk retention group (“RRG”) is a policy issuing liability insurance company that is owned by its member insureds and formed under the Liability Risk Retention Act of 1981, as amended 1986. The Liability Risk Retention Act (LRRA) is a federal law that helps U.S. businesses, professionals, and municipalities to create their own solutions for liability insurance which has become either unaffordable or unavailable due to “liability crisis” problems in the United States. The LRRA permits a RRG to operate on a direct basis in all 50 states (and the District of Columbia) under one state license, provided that it registers in each state in which it conducts business. The LRRA is a federal law and therefore preempts most state regulation, making it easier for RRGs to operate nationally under uniform legislation. The primary requirements of a RRG include that:
- It can only write liability insurance
- There must be more than one insured/owner
- All insureds must be owners and likewise all owners must be insureds
Under the LRRA, the membership of the RRG must be relatively homogeneous: operating in a similar business or profession which exposes the group to similar risks.
EMPAC RRG is a Nevada domiciled risk retention group insuring the risks of its Emergency Medicine Physician owners.
Per United States Code, Title 15-Commerce and Trade, Chapter 65-Liability Risk Retention every state may:
- Require RRGs to comply with their unfair claim settlement practice
- Pay taxes
- Participate in any mechanism created to pay an equitable apportionment among insureds for policies written through the RRG
- Register with and designate the State Insurance Commissioner as agent for service of legal documents
- Submit to financial examination by the state if the domicile state commissioner has failed to do so
- Comply with any lawful state order
- Comply with state law as to deceptive, false, or fraudulent acts
- Comply with injunction alleging impaired financial condition
Several states, including Nevada, have passed their own captive insurance laws in order to create an attractive “domicile” for homogenous groups wishing to start their own RRG. Obviously, being the domiciled state is a revenue producing venture for these captive states.
The word “captive” is a general term and usually refers to “self-insuring” in some manner and under the heading of “captive” we find such structures as: single parent or pure captives, group captives, RRGs, self insurance funds or trusts, off-shore captives, rent-a-captives and other alternative insurance mechanisms.
A RRG may be formed as a captive or as a traditional insurance company but in all cases must be domiciled in a U.S. state and therefore must be an onshore entity. Once licensed by a single state, a RRG is permitted to write business on a direct basis in all fifty states (and the District of Columbia) whereas other forms of captives are not able to operate on a nationwide basis without the use of a fronting carrier. As a RRG, EMPAC RRG is a regulated insurance carrier providing underwriting, claims, risk management and financing management to its insureds. At EMPAC RRG, daily management and board overview is executed by EM physician owner/insureds.
Traditional admitted insurance companies must be licensed and comply with the insurance rules of each state in which it operates. Usually such admitted carriers must file all their forms and rates for approval by each state insurance department. A RRG is created under a federal act and is required to be licensed only in its state of domicile. A RRG registers with but is not subject the insurance laws of any state except the state of domicile.
RRGs are similar to E&S in that neither RRGs or E&S carriers participate in state guarantee funds and nor have their rates and forms approved by the departments of insurance. However, an E&S carrier must be approved by each state, are subject to the insurance laws of each state in which it wishes to write business and brokers selling E&S insurance in a state must receive declinations from admitted carriers before coverage can be bound.
Admitted companies and Excess and Surplus lines companies typically insure multiple specialties and are owned by individuals/corporations other than the insureds. EMPAC RRG is owned solely by its insureds EM physicians and has only the well-being of those owners as its sole reason for existing.
EMPAC RRG has been formed as a non-assessable reciprocal insurance company. As a reciprocal EMPAC RRG is an unincorporated entity. The RRG is managed by an “Attorney-in-Fact”, EMPAC Managers, LLC.
Typically a reciprocal is a pass through entity and taxes are paid proportionately by its subscriber owners. However EMPAC RRG has elected to pay corporate income taxes on behalf of its subscribers and will be taxed under rules for domestic property and casualty insurance companies.
The board of directors will determine a dividend formula and dividends will be declared and paid from time to time to all subscribers in good standing based on the number of units held. As a member owned insurance company engaged in long tail liability risks it is expected that the first dividend will be paid after three to five years of operation.
Each insured emergency room physician group will receive one vote regardless of size or premium.
The state of domicile reviews EMPAC RRG’s financial statements quarterly and such statements are also filed with the National Association of Insurance Commissioners. EMPAC RRG has filed a business plan with its state of domicile specifying its scope of business and states where it plans to write insurance. Other non-domiciled states do have some overview rights as noted above. The reinsurers of EMPAC RRG (who are all rated A – or better by AM Best’s) have a strong vested interest in EMPAC RRG’s well-being and EMPAC RRG’s business plan, underwriting guidelines and financials are provided to and approved by its reinsurers. Reinsures visit EMPAC RRG at least annually to audit its underwriting files for compliance with the agreed upon business plan.
EMPAC RRG’s financial statements are audited annually by the CPA firm Shores, Tagman & Company, P.A.
Milliman, Inc., a national actuarial firm provides state by state by state rates for EMPAC RRG and annually conducts a loss reserve valuation study confirming the adequacy of EMPAC RRG’s loss reserves.
EM physician board members who are also insureds of EMPAC RRG personally are involved with the major functions of EMPAC RRG including Underwriting, Risk Management, Claims, and Financial Management.
No. As noted above RRGs, like Excess & Surplus Lines carriers, are not required to contribute to any state guarantee fund so they are not supported by those same guarantee funds in the event of insolvency. However it should be noted that in an insolvency, state guarantee funds vary from state to state, but generally provide only a limited amount of coverage (typically $300,000 per claim) restrict the time available to report a claim and assign their defense counsel to handle claims
The following organizations have excellent information on risk retention groups.
National Risk Retention Association
4248 Park Glen Road
Minneapolis, MN 55416
Telephone: 952-928-4656
www.nrra-usa.org
Risk Retention Reporter
P.O. Box 91115
Pasadena, CA 50147
Telephone: 626-796-4972
www.rrr.com
As a member owned insurance company, a RRG permits the members to control the type of insureds it admits and the nature of the insurance programs that are offered by the RRG. Over time, and properly managed, this control can result in more effective loss control programs, lower rates and more stable coverage creating decreased reliance of the traditional insurance market. In addition, if successful, the invested capital of the RRG can accrue to the benefit of the membership. Most importantly, the members own and control the RRG. Members are fully informed as to its operations and finance, and can benefit financially from sound underwriting and good claims management.
There are over 220 RRGs currently operational in the United States as of January 20, representing over $2,560,000,000 in premiums written. Collectively, these companies insure a significant percentage of America’s private practice physicians. Since the hard insurance market that started in 2001 there have been over 180 new RRG formations, compared to only about 20 in the prior decade. The resurgence of RRG formation is a direct result of the unaffordability and unavailability of insurance for many professions and industries and RRGs have been established to provide affordable and dependable professional liability insurance free from the uncertainties of the commercial market.
COVERAGE
EMPAC RRG offers medical professional liability insurance coverage with various limits of liability under a “claims-made” policy featuring an incident trigger. The policy provides coverage for claims made against policyholders arising out of the performance of professional services rendered, or that should have been rendered, by the insured during a coverage period specified in the policy. Claims asserted against an insured are only covered when they relate to an incident that took place during the term when the policyholder had coverage with the Company and only if such claim is reported to the Company during the period of coverage.
Multiple locations can be covered through one EMPAC RRG policy and prior acts coverage is available to include terminated locations. EMPAC RRG’s policy provides a “run off” option for terminated locations.
As well as traditional ED locations, EMPAC RRG will also insure fast-track, urgent care on campus or off, hospitals, Pediatric Emergency so long as it is associated with adult EM exposure, admitting orders, air ambulance attending, death certificates, admitting orders, EMS system medical directorships and codes.
Yes. EMPAC RRG’s policy is emergency department specific and offers a single policy issued in the legal name of the group with premium determined by annual patient visits. All practitioners (FT, PT and midlevels) working for the named group are insured via this one single policy. Exiting physicians, due to retirement, career change or PT turnover are not required to obtain a “tail” as they will continue to be insured so long as the group policy remains in force.
No. EMPAC RRG offers only non-assessable policies. There are no Nevada laws or judicial decisions that would result in the imposition of assessments on members of the company.
No. There are no mandatory deductibles.
Various limits are available to members from $100,000 per claim to $1,000,000 per claim. Individual policy aggregates are three times the per claim limit and physician group policy aggregates determined on a case by case basis.
In states where the statutory maximum limits are lower than set forth above, the maximum limits of coverage will be those allowed by statute
A group opening a new location may add that exposure to their existing coverage or start a new and separate EMPAC RRG policy.
New practitioners can be added once the physician has submitted an individual physician application which has been approved by the underwriting team of EMPAC RRG. Insureds are encouraged to adopt EMPAC RRG’s standards for training and practice history into their criteria for recruiting.
EMPAC RRG is licensed by the state of Nevada and in the process of expanding throughout the U.S. Please refer to the EMPAC RRG website to learn if EMPAC RRG is already registered to offer insurance in your state. As a RRG the process of registering in a new state is straightforward and can be accomplished quickly. If your state is not listed, feel free to call us and inquire as to how soon that process might be completed.
Yes, tail coverage will be offered. The cost and structure of tail end policies will be under the governance of the board of directors as is beneficial to the long term success of the company and its physician members. As stated elsewhere, tails are not necessary for individuals departing our group coverage program. Terminated locations can be placed into a run-off position.
UNDERWRITING
Naturally, groups interested in joining EMPAC RRG must fill out both a group application as well as individual physician applications. However, applicants will notice that EMPAC RRG’s applications seek information that reflects the EM physician oversight of the underwriting process. EMPAC RRG is not just seeking evidence of good training and to learn of your claims history, but rather wants insight into the quality of patient safety that exists in your department and what progressive steps have been introduced to improve and continue to improve the risk management aspect of the practice.
Along with gathering this data, the EMPAC RRG underwriting team, which includes physician members, will visit applicant groups as part of pre-underwriting to gain further awareness of the applicant’s risk control status. A written report will be generated from this visit and incorporated into the underwriting decision and this report will be shared with the applicant.
Should the applicant be offered membership in EMPAC RRG and accept that offer, this pre-underwriting report will service as the foundation for EMPAC RRG’s future annual visits in cooperation with the insured group’s continuing effort to improve patient safety.
Supplementing the traditional underwriting factors such as location and historical loss experience EMPAC RRG recognizes that emergency medicine residency training and risk management programs often contribute to the highest quality of emergency departments and therefore top consideration will be given to emergency departments with ABEM or AOBEM board certified physicians.
Premiums are calculated based on the actuarially developed rates, which are applied to the exposure base of the proposed insured. Since a RRG is built as a long-term solution to costs and stability issues experienced in the commercial market, EMPAC RRG’s rates must be expertly calculated on a conservative basis. In the medical professional liability industry, the actuarial firm Milliman is preeminent and does work for many medical professional liability insurers around the country. The physician leaders of EMPAC RRG have directed Milliman to conservatively determine the rates EMPAC RRG must require to provide strong long term security to its members. Milliman has studied industry wide experience to help EMPAC RRG set its state by state rates.
In the future as EMPAC RRG experiences claims and sets reserves with the assistance of Proclaim America, Inc. and the EMPAC RRG claims committee, Milliman will study the adequacy of the RRG’s own experience and incorporate this data into future rates. With the stringent underwriting of applicants, EMPAC RRG anticipates that ultimately its own our experience will be better than the general insurance marketplace and the RRG’s results will support rates that are superior to those offered by other insurers.
Premiums of course must capture the cost of managing an insurance operation and EMPAC RRG’s physician leaders are determined to maintain a “cost of doing business” that is below the traditional “expense load factors” seen in the industry.
All rates are calculated based upon Milliman’s actuarial rate studies for each individual state and for rating territories within a state. EMPAC RRG’s physician leaders hope to provide better than average rates to all its members. Considerations are made for underwriting criteria such as individual exposures, historical results, and quality of the facility’s current patient safety program and the insureds willingness to join EMPAC RRG in working towards continually striving to improve in this area.
Yes, as a member owned entity EMPAC RRG will have an intrinsic interest in returning profits to its member/owners. However, the short term goal is to provide security to members by maintaining financial stability. It will take a few years for the program to develop its own creditable loss history and for rates to be developed based solely on EMPAC RRG’s own experience. It is vital to the success of EMPAC RRG that its member/owners maintain a long term view of success for the company. Obviously, the primary goal of creating EMPAC RRG is to effect financial benefits to members via stable rates and eventually through dividend payments or perhaps even return of surplus.
Yes. Although members will not be required to resubmit any pre-underwriting paperwork, they will be reviewed for loss experiences and any changes in exposures, year’s loss issues as well as their participation in the RRG’s joint patient safety improvement program.
CLAIMS & RISK MANAGEMENT
EMPAC RRG’s board is fortunate to have three physicians with personal experience in managing their group’s claims. Of those three, two have worked for years in the litigious environments of Miami-Dade and Cook Counties. Additionally, EMPAC has selected a recognized third party claims administrator in ProClaim America, Inc. ProClaim, along with Quality Medical Risk Management, the company responsible for overseeing Risk Management and Patient Safety issues, coordinate all claims processing issues.
Members can recommend an attorney of their choosing. As long as their credentials are excellent and they otherwise meet EMPAC’s requirements for all defense counsels, EMPAC will most likely grant such a request. If the requested counsel does not qualify or is conflicted out, a local attorney will be retained based upon the expert knowledge of ProClaim America, QMRM and other insureds.
No. EMPAC wishes to avoid the rare, but inevitable situation of having an intractable insured physician behave detrimentally to the greater good of the RRG. Where EMPAC faces such issues, the insured group will be asked to join EMPAC in reviewing the issues at hand to determine the final course of action. Determinations to settle can be appealed to the Claims Committee and the Board.
QMRM. EMPAC RRG’s Claims Committee will interact with ProClaim America in the investigation of each claim and determine together the proper reserve amount for each claim. All claim reserves will be reviewed by EMPAC RRG’s Claims Committee in preparation for its reporting at each Board meeting. Annually, EMPAC’s independent actuarial firm, Milliman, will perform a loss reserve valuation study and certify the adequacy of the loss reserves.
QMRM will work with ProClaim’s adjusters to determine recommended settlement amounts. All recommended settlements over $50,000 will be approved by the EMPAC RRG Claims Committee, and those in excess of $500,000 by the Board within a general review of each claim.
Yes. Effective risk management is a primary goal of EMPAC RRG. Since EMPAC is specialty specific, it is able to examine targeted losses and discover which risk management factors result in the most impact to claims reduction. EMPAC also benefits from the ability of its physician members to share ideas specific to the risk management programs in place at their emergency department, thus creating an ideal setting for innovative and customized plans to flourish.
An extensive members-only online Risk Management and Patient Safety webpage is available with short monthly mandatory online presentations on critical issues. Through the management of claims from across the country, QMRM, which manages the content of the site, is able to identify trends in malpractice litigation and loss prevention strategies.
MEMBERSHIP
EMPAC RRG’s founders conducted a study of Florida EM claim experience that followed a similar study conducted in Colorado in the 90’s. These studies provide guidance towards identifying a superior EM risk. Obviously training is foundational, but EMPAC RRG through its unique clinical application, personal interview of candidate group leaders by EMPAC RRG physicians, and a site visit to review patient safety standards, taken together, along with examination not just of loss experience in terms of dollars but what led to the underlying cause of claim events, provides EMPAC RRG underwriters with an overall quotient for a superior risk.
EMPAC RRG is available nationwide and offers coverage written through the group’s legal name via a single policy covering all practitioners. EMPAC RRG does not offer individual physician coverage.
Under the LRRA a RRG is a member owned insurance company, in which all insureds must be owners and all owners must be insureds. As such, all groups joining EMPAC RRG are required to make a contribution to surplus. This contribution can in certain circumstances be spread over up to five (5) years and sixty (60) payments via financing options provided by EMPAC RRG. In total, the contribution is equal to fifty percent (50%) of the fully mature claims made premium.
In order for EM physicians to provide EMPAC RRG the control to create security, stability, and favorable rates, outside investors are not allowed.
Yes, premium financing is available as well options for financing surplus contribution as noted above.
Various premium financing options are available such as 25 % down and nine (9) equal payments. Simple interest is applied to the declining balance. Quotations for financing cost are available along with premium quotations.
Yes. Effective risk management is a primary goal of EMPAC RRG. Since EMPAC is specialty specific, it is able to examine targeted losses and discover which risk management factors result in the most impact to claims reduction. EMPAC also benefits from the ability of its physician members to share ideas specific to the risk management programs in place at their emergency department, thus creating an ideal setting for innovative and customized plans to flourish.
An extensive members-only online Risk Management and Patient Safety webpage is available with short monthly mandatory online presentations on critical issues. Through the management of claims from across the country, QMRM, which manages the content of the site, is able to identify trends in malpractice litigation and loss prevention strategies.
GOVERNANCE
EMPAC RRG is managed by physician board members of EMPAC RRG who individually sit upon standing committees including Underwriting, Finance, and Claim and Risk Management. Daily management is provided by EMPAC RRG’s contracted attorney-in-fact EMPAC Managers LLC. Support services are contracted to Risk Services, LLC, which is expert in RRG business affairs and provides such services to more than twenty other RRGs in operation today.
EMPAC RRG’s Finance Committee and EMPAC Managers works with Atlantic Trust who will be providing investment services for EMPAC RRG as decided by the EMPAC RRG Board of Directors. They contribute the benefit of an in-house management and trading team coupled with extensive research and analytical strategies. Atlantic Trust will implement asset allocation portfolio modeling as well as insurance approved reporting.
In cooperation with EMPAC RRG’s Board and Finance Committee, the independent CPA firm of Shores and Tagman will perform an annual audit of the financial statements that are prepared by Risk Services LLC.
FINANCIAL STABILITY
EMPAC RRG has been organized as a reciprocal insurance exchange under the laws of the State of Nevada and operates under the Liability Risk Retention Act of 1986, as amended (the “Act”). A RRG is licensed in one state and “registered” in all other states that it anticipates doing business in. RRGs are not eligible for state insolvency funds but, as with Surplus Lines insurers, they are not required to pay into such insolvency fund assessments.
Yes. The company purchases reinsurance that provides a limit of up to $750,000 per loss, per insured, excess of EMPAC RRG’s primary retention layer of $250,000 per loss, per insured. The reinsurance was previously provided by certain Lloyds syndicates, each of which is approved by the Nevada Division of Insurance and has an A.M. Best rating of A- (excellent) or better and since July 2010 reinsurance has been provided by AmTrust which has an A.M. Best rating of A (excellent).
The advantages of doctor-owned or operated companies over commercial insurance carriers are numerous, especially for a single specialty program such as EMPAC RRG. With a doctor-owned insurance company the physician led board of directors have complete control over the program hopefully resulting in a situation where savings that have materialized through improved claims experience and efficient operation have been returned to doctor-policyholders either in the form of dividends or reduced premiums. Financial success is also found in many cases where doctor-owned companies vigorously defend their insureds when peer review indicates that negligence was nonexistent rather than following the route of commercial companies who are too often willing to settle unwarranted and frivolous claims, despite the resulting effect on the physician’s professional reputation. In addition, since physicians examine the claims, physician-owned companies such as EMPAC RRG uses this information to develop effective and acceptable risk management programs.
Today, RRGs have become solid financial enterprises in the marketplace as is evident in fields such as Anesthesia, Oral Surgery, and Ophthalmology. Most importantly, RRGs such as EMPAC RRG maintain their strong commitment to providing a safer and more cost-effective healthcare environment.
REGULATION
The state in which the RRG is domiciled has primary regulatory authority over it. The insurance department of the domicile state is responsible to monitor both the RRGs compliance with the LRRA and any specific requirements of that state of domicile. EMPAC RRG is regulated by the state of Nevada, which is the state in which EMPAC RRG is domiciled.
EMPAC RRG does provide its business plan and financials to each state as part of its registration with each state’s Dept of Insurance.
Nevada has been chosen for the domicile for EMPAC RRG due to its favorable captive insurance regulatory requirement and extensive experience in the successful regulation of RRGs. In addition, as one of the premier locations for captive insurance companies in the U.S., Nevada has a well-established infrastructure at both the private and public levels, including lawyers, accountants, and administrators well-versed in RRG operations.