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.
