Risk Retention Group vs Captive Insurance: What’s the Difference?

risk retention group

Business owners are constantly thinking about their insurance and how well they’re being covered. This is where the debate about risk retention vs captive insurance comes into the picture of risk retention group. 

But what is a risk retention group? What does a captive insurance company do? 

In this article, we’ll be answering those questions once and for all. Let’s look at the main differences between a captive insurance company and a risk retention group here. 

What is a Captive Insurance Company?

Let’s start by defining what a captive insurance company does. 

A captive insurance company is a wholly-owned subsidiary insurer. They provide risk-mitigation services for their parent company and a group of other related organizations. 

But why would a parent company create a captive insurance company?

Some organizations do so because they can’t find an appropriate outside firm to insure them against specific risks. Sometimes the premiums paid to the captive insurance company create tax incentives. 

Captive insurance companies act as “self-insurance” for corporations. While the tax credits can be lucrative, it’s a pretty expensive practice. 

There’s a lot of compliance issues to consider, as well as administrative and overhead costs. 

A good example of a captive insurance company is Jupiter Insurance. British Petroleum (BP) received millions of dollars of incentive money by working with Jupiter, which made headlines during the 2010 BP oil spill. 

What is a Risk Retention Group?

Risk-retention groups are liability insurance groups owned by their members. The basic concept is that companies with similar risk profiles pool their risks under a risk-retention group. 

RRGs are largely exempt from state insurance laws. For example, they don’t have to contribute to state guaranty funds. 

They’re commonly created and owned by law firms, medical organizations, and financial service firms. 

RRGs provide a lot of program control as well as long-term stability. It lets companies control their loss and risk management practices.

Captive Insurance vs. Risk Retention Group: What’s the Difference?

RRGs and captive insurance companies might sound pretty similar since they both involve companies providing their own insurance. There are some key differences, however, which we’ll discuss here:


Captive insurance companies can be located anywhere in the world, while RRGs have to be located in the U.S. 

RRGs were created and are governed by the Liability Risk Retention Act of 1986. This means companies under RRGs that do business internationally face some challenges, but not for companies under a captive insurance group. 

Fronting Paper

Fronting papers are ways that companies can exist on an established insurance company’s financial ratings and filings. RRGs don’t require fronting papers, while captive insurance companies do.


Captive insurance companies can sell stock to companies that aren’t insured by them. It can be purchased by the business owners, the parent company, family trusts, and key employees. RRG stocks can only be purchased by the named insured. 


RRGs can only write liability coverage. Captives can write coverage for buildings, collision, cargo, and a slew of other topics. 

Leverage Captive and RRG Differences

Key differences between captive insurance and a risk retention group mean different things for different companies. Refer to this article to decide how these differences benefit your organization and get the right insurance today. 

For more informative articles on insurance and other topics, check out the rest of our site!

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