Insurance Journal Forums

Can someone tell me of any disadvantages to purchasing E&O through a Risk Purchasing Group where you are an enrolled agency on a master policy with your own limits of liability and where you maintain your current retro date? The pricing difference seems too good to be true.

Some issues that should be considered:

RPG's are federally overseered and only subject to state approval -- states usually rubber stamp when federally approved. They will debate you mightily that that is not the case, but it really is. Ditto RRG's which CA routinely approves without regard to capitalization or form - meaning that they can be dead men walking at their outset.

RPG's -- like RRG's -- can only write one line of business. In times of market turmoil and resulting class capacity shortages they can be very valuable if you do your homework. Under no circumstances should an insured be placed in an RPG or RRG if there is another traditiolnal insurer -- admitted or nonadmitted -- available for a similar bottom line price. Price should never be a criteria for an insured to accept an RPG.

RPG's may show limits on each policy but historically their ability to pay is limited to an annual finite amount of limits/capacity that they reinsure which means that in the event of many claims by many insureds [worst case scenario] that capacity of limits might be gone when you file a claim leaving you in the lurch and uncovered. If you produce a long-tail product which might not show claims for many years after your policy is written in the RPG, I would beware;

RPG's may not be able to produce loss runs for an individual insured. This is a dead giveaway that they have finite capacity.

RPG's can be a valid and totally objective marketing device for associations, affinity groups and the like. Those RPG's usually have secured a Best rated insurer for their front or issuing carrier with risk and the fronting carrier has some of their own skin in the game [they accept risk]. In this case the value of the RPG is significant, in that, if the issuing carrier has to leave the line of business for any particular reason, the RPG can usually seamlessly move the business in total to another rated insurer. Remember that just the fact that the RPG can secure a reputable front speaks volumes of its integrity.

A few years ago we had an experience with a contractor insured whose GL had been written for many years in the traditional insurance markets. He was wooed by a direct writing RPG based in Utah. They were substantially lower in price than the traditional markets but they were unrated and promised the moon. The insured wanted only low price so he accepted their bid. To bind he had to fly to Utah, sign their "agreement'" and pay their charges in full as no premium financing was allowed. Oh yes, they did not pay his way to Utah, there was no rated front and the limits were a basket for all insureds. The lesson was partially learned but it was too late. Personally, I've only ever recommended RPG's with a Best's rated "A" front with skin in the game.....after researching their management.

Like many things in the insurance business breeding is super important. A good track record is everything so reseach a RPG & its management thoroughly before you or your insured commits to one.

From the information I've received, it looks like the Fireman's Fund E&O for insurance agents is written through a Risk Purchasing Group. But its Fireman's Fund, so how can that be bad?

If it meets the criteria that I discussed [rated carrier-it does; own limits rather than a basket-it does; etc.] then you shold be ok. it appears that the FF program is like the Lex's: placed in an RPG as a marketing vehicle which makes it easier to move or sell to another carrier should they decide to leave the program. Marketing such coverage through an RPG really does reduce the premium substantially because the non risk related expenses are much less.

BTW, I was discussing RPGs in general and might have missed your particular forest. Hope no offense taken.

mightyquinn wrote:If it meets the criteria that I discussed [rated carrier-it does; own limits rather than a basket-it does; etc.] then you shold be ok. it appears that the FF program is like the Lex's: placed in an RPG as a marketing vehicle which makes it easier to move or sell to another carrier should they decide to leave the program. Marketing such coverage through an RPG really does reduce the premium substantially because the non risk related expenses are much less.

BTW, I was discussing RPGs in general and might have missed your particular forest. Hope no offense taken.

None taken, mightyquinn. Like the screenname, there is a song called Mighty Quinn that I like alot.

Thanks for your opinion!