The trucking industry's reliance on risk retention groups has created a complex web of financial and safety risks that are often hidden from view. A small trucking company may be insured by an entity that is itself struggling financially, leaving the carrier vulnerable to collapse. This can have devastating consequences for drivers and passengers in the event of an accident.
The use of risk retention groups (RRGs) has become a common practice in the trucking industry, but few people understand how they work or the risks involved. RRGs are member-owned liability insurers that were formed under the federal Liability Risk Retention Act of 1986 to help industries with limited insurance access pool their risks and self-insure collectively.
The trucking industry adopted the RRG model because traditional commercial auto insurers pulled back from small carriers or priced them out of coverage. However, this has created a situation where RRGs may not be adequately capitalized or well-run, leaving drivers and passengers at risk in the event of an accident.
In most states, if an RRG goes broke, the state guaranty fund will not cover the claims. This means that crash victims may be left with no recourse and may have to rely on unsecured creditors to collect any remaining funds.
The lack of transparency and oversight in the RRG model can make it difficult for drivers and passengers to understand their coverage options and the risks involved. This is particularly concerning given the complexity of the trucking industry's financial and safety architecture.
A study that mapped the financial and safety architecture underneath a corner of the trucking market found that many carriers are insured by entities with poor safety scores or unstable financials. This can have serious consequences for drivers and passengers in the event of an accident.
The use of RRGs has also created a situation where crash victims may be left without coverage if the insurer collapses. This is because traditional insurers do not typically provide coverage to carriers that are part of an RRG.
In 2003, the collapse of Reciprocal of America, a Virginia-domiciled RRG that insured professional services, highlighted the risks involved in the use of RRGs. The company left more than $1 billion in uncovered obligations and thousands of claimants without recourse.
The trucking industry's reliance on RRGs is a complex issue that requires greater transparency and oversight to protect drivers and passengers. Until then, crash victims may be left with little to no recourse if an RRG goes broke.
The lack of transparency and oversight in the risk retention group model can leave crash victims with little to no recourse.
