What is the primary purpose of risk retention groups?

The primary purpose of risk retention groups is to pool liability risks. These groups are formed primarily to allow members with similar risks to come together and share those risks, which can lead to lower costs and better coverage options for the participants. They are often used by businesses engaged in similar industries or activities, providing a means for them to manage their liability exposure collectively.

By pooling their risks, members of a risk retention group can benefit from economies of scale, which can reduce premium costs and increase access to necessary liability coverage that might be challenging to secure individually due to the nature of their businesses. This shared responsibility among members allows them to handle larger claims and provides stability that individual policyholders might not achieve on their own.