Some insurance carriers are structured as risk retention groups (RRGs), and that's often why their quote comes in lower than what a traditional broker places with a rated carrier.
Before you bind coverage, there are five questions worth asking, because the answers will tell you whether that policy will hold up the way you need it to.
1. Is This Carrier Rated by A.M. Best?
A.M. Best is the primary financial rating agency for the insurance industry. Its financial strength ratings, which run from A++ (Superior) at the top down to D (Poor) at the bottom, assess an insurer's ability to meet its policyholder obligations. The rating matters not just as a quality signal, but as a contractual requirement in more agreements than most buyers realize.
Enterprise customer contracts, investor side letters, and commercial leases frequently include clauses requiring a minimum carrier rating before they'll accept coverage. A- or better is the most common floor. If the carrier providing your coverage doesn't meet that threshold, your policy may not satisfy the contracts that made you buy insurance in the first place.
RRGs are not required to obtain A.M. Best ratings, and many don't. Some carry lower ratings than traditional admitted carriers, and some operate without any independent rating at all. That's not automatically disqualifying, but it becomes a problem the moment a counterparty checks.
Before you compare prices, pull the insurance requirement language from your customer contracts, your investor documents, and your office lease. If those documents specify a rating floor, confirm the RRG meets it. A.M. Best rating requirements appear regularly in enterprise customer contracts and investor agreements for technology companies, often as a non-negotiable condition of doing business.
2. Is This Policy Backed by a State Guaranty Fund?
Every state maintains an insurance guaranty fund. If a licensed, admitted carrier becomes insolvent, the state's guaranty fund steps in to pay covered claims up to applicable limits while the insolvency is resolved.
RRG policies are explicitly excluded from state guaranty fund protection. Because RRG members are also the owners, they're expected to monitor the group's financial health directly, unlike consumers of traditional admitted insurers who rely on state oversight as a backstop.
For some buyers, this trade-off works. RRGs with strong financials, adequate reserves, and solid reinsurance can be sound coverage options. But it's a trade-off to understand before you sign, not after a claim is in progress.
If you're evaluating an RRG, ask specifically about its reinsurance structure. And ask whether the reinsurance agreement includes a cut-through clause, which allows the reinsurer to pay claims directly to policyholders if the RRG fails.
3. What Happens to Claims in Progress If the Carrier Fails?
The absence of a state guaranty fund has concrete implications for any claim that's open when a carrier fails. With an admitted carrier, state guaranty funds continue processing covered claims through the insolvency, up to applicable limits, so policyholders aren't left mid-claim without coverage.
For RRGs, no such mechanism exists. In an RRG insolvency, the insurance commissioner of the domiciliary state places the group into receivership, and open claims become subject to court-supervised distribution from whatever assets remain. Whether your claim is paid, and at what percentage, depends on where it falls in the distribution and how much the group has left after other obligations are settled.
Well-run RRGs with strong financials rarely reach this scenario. But for companies with active or reasonably anticipated claims, including companies in litigation-prone industries or operating under contracts with material liability exposure, it's a meaningful consideration in the comparison.
4. Will My Certificate of Insurance Be Accepted?
A certificate of insurance is the document your landlord, your lead investor, or your enterprise customer actually sees. It lists the carrier name, the coverage type, and the limits. If the carrier doesn't satisfy what your counterparty requires, the certificate doesn't solve your problem, regardless of whether the underlying policy is technically valid.
This matters most at the moments that tend to be time-sensitive: signing an office lease, closing a funding round, executing your first enterprise contract. Those are exactly the situations where your insurance needs to work immediately, and where discovering it won't be accepted creates real operational pressure.
Before you bind, take the carrier name and structure to whoever will request a certificate and ask them explicitly whether it meets their requirements. If they require an admitted carrier or a carrier meeting a specific A.M. Best threshold, confirm the RRG satisfies both. A quick check before binding is much less painful than a mid-term carrier switch under a contract deadline.
5. Could You Be Assessed for Additional Contributions?
When you buy a policy from an RRG, you're not just a customer, you're a member. Policyholders are also owners, and the group operates on a collective financial model. The upside of that structure is more say in underwriting philosophy and claims management. The downside is that if the RRG takes on more losses than its reserves can cover, the group may need to raise additional capital.
Depending on the RRG's structure and governing documents, that can mean an assessment: a required capital contribution from members. Not all RRGs retain this right; some have reinsurance arrangements that absorb shortfalls but others structure their agreements to specifically limit member assessment exposure. But some do retain it, and the potential liability is worth understanding before you join.
Ask the RRG directly: does this group have the ability to assess members? Under what conditions? Has it ever done so? If the answer to the first question is yes and the answers to the others are unclear, that's information you need before binding.
If you can get clear answers to all five of these questions before you bind, you're in a position to make an informed comparison. An advisor can walk you through what your company needs, where the trade-offs land for your specific contracts and risk profile, and whether the price difference reflects a better market or something different being underwritten.
Frequently Asked Questions
Are RRG policies legitimate insurance?
RRGs are licensed carriers that issue real insurance policies subject to state and federal regulation. Whether an RRG is the right choice depends on your specific contracts, your counterparty requirements, your industry's risk profile, and your comfort with the structural trade-offs described above, particularly the absence of guaranty fund protection and the possibility of member assessments.
Do RRG policies have to disclose the lack of guaranty fund protection?
Yes. The Liability Risk Retention Act of 1986 requires every RRG policy to carry a specific disclosure stating that state insurance insolvency guaranty funds are not available to policyholders.
What is an A.M. Best rating and why does it matter for my contracts?
A.M. Best is an independent rating agency that evaluates the financial strength of insurance carriers. Its letter ratings reflect the carrier's ability to meet policyholder obligations. Many enterprise customer contracts, investor agreements, and commercial leases specify a minimum A.M. Best rating, often A- or better, as a condition of accepting a vendor's or tenant's coverage.
Can an RRG assess its members for additional capital contributions?
Because policyholders are also member-owners, some RRGs retain the right to assess members if the group runs short on capital due to large losses or underwriting shortfalls. Not all RRGs exercise this right, and some have reinsurance structures that limit or eliminate it.
Vouch Specialty Insurance Services, LLC (CA License #6004944) is a licensed insurance producer in states where it conducts business. A complete list of state licenses is available at vouch.us/legal/licenses. Insurance products are underwritten by various insurance carriers, not by Vouch. This material is for informational purposes only and does not create a binding contract or alter policy terms. Coverage availability, terms, and conditions vary by state and are subject to underwriting review and approval.
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