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Back in the 1960’s and later in the 1980’s, the products liability and medical malpractice crisis caused the federal government to diverge from its historical practice of leaving the regulation of insurance to the states. Based on a medical liability market where doctors and other health care providers could not obtain insurance covering their negligent acts, the Liability Risk Retention Act of 1986 was passed. 15 USCA 3901 (1986). Tucked away in the law is the enabling legislation for an insurance mechanism known as a Purchasing Group (‘PG”). The PG law authorizes otherwise unaffiliated commercial enterprises to assemble into a common enterprise or group when buying liability insurance. The law includes prohibitions against the states discriminating against these groups by any state regulation that attempts to prevent their existence or interferes with the federal law’s intent in allowing insurance buying groups certain product advantages for their members. The specific advantages mentioned by the law include policy forms, premium rates and other coverage advantages provided to only members of the group. The idea being that a group may increase its buying leverage when working in the insurance market and the federal government saw this market dynamic as a viable and cost effective response to the insurance crisis resonating throughout the country. One physician may not receive much a response from a billion dollar insurance company, but a group of several hundred may successfully get their premium rated on the group’s experience and not industry wide experience. The PG law was part of the Risk Retention Group law which also creates federally authorized insurance entities known as Risk Retention Groups, but that is fodder for another story. Form & Rate PG’s offer an insurance professional many advantages when confronting a marketplace that too often moves slow and provides little opportunity for product improvement through unique policy forms and rates. As an example, PG’s provide an efficient strategy for confronting the many varied form and rate filing requirements demanded by the states. As a PG, the states are preempted from raising objections to a policy form that offers the group unique or different coverage simply because it is policy coverage for the group alone. The same benefit in responding to a state’s regulation of premium rates is available. The states are blocked by the federal law from rejecting a rate filing made on behalf of a PG because the filing allows for a group discount or otherwise interferes with the groups buying leverage with the insurance industry. Other Advantages Advantages in policy coverage’s, premium pricing, policy limits and distribution restrictions also support the development and use of a purchasing group for your insurance program. The federal law also enables a sponsoring broker or association to charge a fee to offset the expenses of developing and managing the purchasing group. Brand awareness, buying power and data development all are outcomes that are related to the proper operation of purchasing group. How? The organizational process is much like any new insurance organization. There is the entity organizational process and the insurance regulatory application process. The States require specific registration information and forms for each new purchasing group either formed or intending to do business in their state. Professionals such as attorneys and insurance managers can guide you through this process that typically requires sixty days. Once the entity is organized and the regulatory application process is complete, the purchasing group can begin conducting business and purchase insurance for its members.
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