Insurance Broker Certification Practice Exam

What is the structure of a risk retention group?

1. A non-profit organization

2. A liability insurance company owned by its members

3. A publicly traded insurance firm

4. A government-run insurance program

The correct answer is: A liability insurance company owned by its members

A risk retention group is specifically defined as a liability insurance company that is owned by its members. This structure allows the members, typically businesses that share similar risks, to pool their resources and manage their own insurance needs more effectively. By pooling their resources, members can achieve greater control over their risk management processes and potentially lower their insurance costs through shared risk and economies of scale. In a risk retention group, the members are usually engaged in similar businesses or industries, which allows them to have a more concentrated understanding of the risks they face. This ownership model distinguishes it from other types of insurance entities, such as for-profit corporations or government-run programs, which do not offer the same level of member control and shared risk management. Additionally, the non-profit organization structure often associated with some entities does not align with the primary function of a risk retention group, which is to operate as a commercial liability insurance company for its members.