Purchasing Group
An LRRA entity allowing members with similar liability exposures to purchase insurance collectively, leveraging group size for favorable carrier terms.
FAQs
- How does a purchasing group differ from simply getting a group insurance quote?
- An informal group quote is a carrier's pricing decision with no special legal status. A purchasing group under the LRRA has federal authorization that preempts certain state regulations, allowing the group to purchase coverage in any state where members operate without complying with state-specific group purchasing laws. The LRRA preemption is what makes the structure useful for multi-state membership organizations.
- Does forming a purchasing group require significant capital?
- No. Unlike an RRG, a purchasing group does not need to capitalize an insurance company. The primary requirements are registration in the home state and each state where members are located, plus demonstrating the homogeneity of member risks. Formation costs are primarily legal and administrative, not insurance company capitalization costs.
- Can a purchasing group be sponsored by a trade association?
- Yes, trade associations frequently serve as the organizing vehicle for purchasing groups. The association provides the administrative infrastructure, member relationships, and common-risk characteristic. The purchasing group is a separate legal entity from the association but often governed by the association or its designees.
Related Terms
Risk Retention Group (RRG)
A group-owned captive under the federal Liability Risk Retention Act allowing members with similar liability risks to self-insure across all US states.
Affinity Group
A professional, trade, or membership organization offering insurance to members via an exclusive or preferred carrier relationship leveraging group size.
Surplus Lines Compliance
Regulatory requirements governing non-admitted insurance placement—diligent search documentation, stamping office filings, disclosure, and tax remittance.
Producer Licensing
The state-by-state system requiring insurance agents and brokers to obtain and maintain licenses to solicit or sell insurance for each line of authority.