Evaluating Risk Retention Groups Against Property and Casualty Insurers
RWC prioritizes providing members with strong insurance backing to ensure peace of mind and security. This robust support not only protects our members' investments but also reinforces our commitment to delivering reliable coverage and service, safeguarding them against unforeseen issues. That’s why RWC has backed its warranties with a Risk Retention Group (RRG) since 1990.
You see, Property and Casualty (P&C) coverage can be extremely volatile both in terms of rates and continuity. When using a P&C carrier, a warranty company’s rate structure is vulnerable to rate increases derived from losses in totally unrelated industries. For example, the country has seen more than its fair share of both natural disasters and environmental catastrophes. Consider the losses caused by the recent hurricanes. If a P&C company suffers huge losses in even one of these events, the company’s rating may drop and it may be compelled to raise its insurance rates across all its lines of coverage. The end result is that a builder’s warranty rate goes up even though the warranty company’s loss ratio may be extremely low.
RWC also discovered that P&C carriers are quick to drop blocks of business for a variety of reasons: too little premium generated, changes in corporate strategy, etc. If a P&C insurer chooses not to renew its master policy, the warranty company is left scrambling for a replacement.
With an RRG, only one type of risk is insured - in this case, that means new home warranties and general liability insurance issued by RWC for our member builders exclusively. Consequently, our rates are based solely on our own loss ratio. If we continue to keep control of claims and continue to stringently screen members for quality, RWC will be able to maintain a sound and economically competitive rate structure. Oil tankers running aground or category 4/5 hurricanes will have no effect on the cost of a new home warranty or the strength of the insurance company.
Additionally, RRG’s are not fly-by-night organizations that are easily formed. Not only are they subject to insurance laws in their own domiciliary state, but they must also fulfill certain criteria before offering insurance in any other state. For example, each RRG must submit a copy of its plan of operation to the insurance commissioner of each state in which it intends to do business. It must also submit a copy of its annual financial statement to each state. Formation involves licensing, ownership and membership requirements. Failure to adhere to the strict mandates can subject groups to claims of unauthorized insurance activity.
We feel our members deserve an insurance structure that is committed to our program for the long haul. It is our philosophy that warranties insured with a stable RRG will provide our builders and their homeowners with secure and reliable coverage for 5 years, 10 years and beyond.