Health-care organizations look to RRG to lower costs.

As hospitals, physicians and nursing homes look to take control of their rising liability costs, many are turning to risk retention groups, a type of captive made possible by a 1986 federal law.

So far this year, 32 risk retention groups have been formed, compared with 21 new risk retention groups in all of 2002, according to the Risk Retention Reporter. That brings the total of risk retention groups up to 117, according to the Risk Retention Reporter, which tracks the groups. Of the 32 risk retention groups formed so tar this year, 14 are providing coverage to hospital health systems and their physicians; six are insuring physicians; and five are covering nursing homes. The remaining seven aren't related to medical areas at all.

Risk retention groups are a type of captive. Allowed under the Federal Liability Risk Retention Act of 1986, RRGs are owned by their policyholders and authorized to only write liability insurance for their owners/policyholders. Membership in a risk retention group is limited to similar businesses which are exposed to similar risks.

Tom Hermes, principal health care professional liability practice leader for Tillinghast-Towers Perrin, said one advantage of RRGs is that they don't need fronting carriers. Fronting tees have escalated for health care liability captives. For example, a fronting fee that might have been $100,000 just a few years ago has grown to become a percentage of premiums, which could reach as high as $500,000 to $1 million. Plus there are only a few carriers left willing to act as fronts for captives, he said.