Frequently Asked Questions

Part I: Organization Of SCRUBS RRG

What is a Risk Retention Group?

A risk retention group (RRG) is a policy issuing liability insurance company that is owned by its member insured's and formed under the Liability Risk Retention Act of 1981, as amended in 1986. The Liability Risk Retention Act (LRRA) is a federal law that helps U.S. businesses, professionals, and municipalities create their own solutions for liability insurance which has become either unaffordable or unavailable due to liability crisis problems in the United States. The LRRA permits a RRG to operate on a direct basis in all 50 states (and the District of Columbia) under one state license, provided that it registers in each state in which it conducts business. The LRRA is a federal law, and therefore, preempts most state regulation, making it easier for RRG’s to operate nationally under uniform legislation. The primary requirements of a RRG include that:

It can only write liability insurance
There must be more than one insured/owner
All insured's must be owners and likewise all owners must be insured's
Under the LRRA, the membership of the RRG must be relatively homogeneous

Per United States Code, Title 15-Commerce and Trade, Chapter 65-Liability Risk Retention, every state may:

Require RRG's to comply with their unfair claim settlement practice
Pay taxes
Participate in any mechanism created to pay an equitable apportionment among insured’s for policies written through the RRG
Register with and designate the State Insurance Commissioner as agent for service of legal documents
Submit to financial examination by the state if the domicile state commissioner has failed to do so
Comply with any lawful state order
Comply with state law as to deceptive, false, or fraudulent acts
Comply with injunction alleging impaired financial condition

How does a RRG differ from a captive?

Several states, including Nevada, have passed their own captive insurance laws in order to create an attractive domicile for homogenous groups wishing to start their own RRG. Obviously, being the domiciled state is a revenue producing venture for these captive states.

The word captive is a general term and usually refers to self-insuring in some manner, and under the heading of captive we find such structures as: single parent or pure captives, group captives, RRG's, self insurance funds or trusts, off-shore captives, rent-a-captives and other alternative insurance mechanisms.

A RRG may be formed as a captive or as a traditional insurance company, but in all cases, must be domiciled in a U.S. state, and therefore, must be an onshore entity. Once licensed by a single state, a RRG is permitted to write business on a direct basis in all fifty states whereas other forms of captives are not able to operate on a nationwide basis without the use of a fronting carrier. As a RRG, SCRUBS RRG is a regulated insurance carrier providing underwriting, claims, risk and financial management to its insured's. At SCRUBS RRG, daily management and board overview is executed by SCRUBS Managers, LLC.

How does a RRG differ from an admitted insurance company?

Traditional admitted insurance companies must be licensed and comply with the insurance rules of each state in which it operates. Usually such admitted carriers must file all their forms and rates for approval by each state’s insurance department. A RRG is created under a federal act and is required to be licensed only in its state of domicile. A RRG registers with, but is not subject to, the insurance laws of any state except the state of domicile.

How does a RRG differ from an Excess & Surplus Lines Company?

RRG's are similar to E&S carriers in that neither one participates in state guarantee funds, nor do their rates and forms need to be approved by the departments of insurance. An E&S carrier, however, must be approved by each state, and they are subject to the insurance laws of each state in which they wish to write business. Brokers selling E&S insurance in a state must receive declinations from admitted carriers before coverage can be bound.

Admitted companies and Excess and Surplus lines companies typically insure multiple specialties and are owned by individuals/corporations other than the insured's. SCRUBS RRG is owned solely by its insured's and has only the well-being of those owners as its sole reason for existing.

What is the legal structure of SCRUBS RRG?

SCRUBS RRG has been formed as a non-assessable mutual insurance company. SCRUBS RRG is managed by an experienced management company that has had huge successes with other RRG’s; most recently a single specialty RRG for emergency medicine physicians (EMPAC RRG).

What will I receive for my investment in the RRG?

Each subscriber will receive a surplus contribution certificate evidencing ownership of the RRG. Founding members, those insured's that join the RRG during the first twelve months of operation, will be allocated "preferred shares" in the company. These shares will be a reflection of the surplus contribution bases on your premium size.

How and when will dividends be declared?

The board of directors will determine a dividend formula and dividends will be declared and paid from time to time to all subscribers in good standing based on the number of shares held. As a member owned insurance company engaged in long tail liability risks, it is expected that the first dividend will be paid after three to five years of operation.

How many votes will I receive?

Each insured physician will receive one vote.

Who overviews a RRG?

The state of domicile reviews SCRUBS RRG's financial statements quarterly and such statements are also filed with the National Association of Insurance Commissioners. SCRUBS RRG has filed a business plan with its state of domicile specifying its scope of business and states where it plans to write insurance. Other non-domiciled states do have some overview rights as noted above. The reinsurers of SCRUBS RRG (who are all rated A or better by AM Best) have a strong vested interest in SCRUBS RRG's well-being and SCRUBS RRG's business plan. Underwriting guidelines and financials are provided to and approved by its reinsurers. Reinsures will visit SCRUBS RRG to audit its underwriting files for compliance with the agreed upon business plan.

SCRUBS RRG's financial statements are audited annually by the CPA firm Shores, Tagman & Company, P.A.

Milliman, Inc., a national actuarial firm, provides state by state rates for SCRUBS RRG and annually conducts a loss reserve valuation study confirming the adequacy of SCRUBS RRG's loss reserves.

Certain physician board members who are also insured's of SCRUBS RRG are involved with the major functions of SCRUBS RRG including Underwriting, Finance and Claims and Risk Management.

Do state guarantee funds apply to a RRG?

No. As noted above, RRG's, like Excess & Surplus Lines carriers, are not required to contribute to any state guarantee fund, so they are not supported by those same guarantee funds in the event of insolvency. However, it should be noted that in insolvency, state guarantee funds vary from state to state, but generally provide only a limited amount of coverage (typically $300,000 per claim), restrict the time available to report a claim, and assign their defense counsel to handle claims.

Where do I find more information on RRG's?

The following organizations have excellent information on risk retention groups.

National Risk Retention Association
4248 Park Glen Road
Minneapolis, MN 55416
Telephone: 952-928-4656
www.nrra-usa.org

Risk Retention Reporter
P.O. Box 91115
Pasadena, CA 50147
Telephone: 626-796-4972
www.rrr.com

What are some of the advantages of a physician owned insurance company?

As a member owned insurance company, a RRG permits the members to control the type of insured's it admits and the nature of the insurance programs that are offered. Over time, this control can result in more effective loss control programs, lower rates, and more stable coverage, creating decreased reliance on the traditional insurance market. In addition, if successful, the invested capital of the RRG can accrue to the benefit of the membership. Most importantly, the members own and control the RRG. The members are fully informed as to its operations and finance, and can benefit financially from sound underwriting and good claims management.

Are there many RRG's operating currently?

As of January 2005, there are over 190 RRG's currently operating in the United States as, representing over $2,150,000,000 in premiums written. Collectively, these companies insure a significant percentage of America's private practice physicians. Since the hard insurance market that started in 2001 there have been over 150 new RRG formations, compared to only about 20 in the prior decade. The resurgence of RRG formation is a direct result of the unaffordability and unavailability of insurance for many professions and industries and RRG’s have been established to provide affordable and dependable professional liability insurance free from the uncertainties of the commercial market.

Are there other single specialty RRG's in existence?

Of over 80 medical provider related RRG's operating today, the following are a sample of those that already exist as single specialty insurers:

Advanced Physicians RRG – Geriatric Physicians
American Association of Orthodontists RRG
Gynecologic Oncologists RRG
Ob/Gyn National Insurance Co RRG
OMS National Insurance Co RRG – Oral and Maxillofacial Surgeons
Ophthalmic Mutual Insurance Co RRG
Pediatricians Insurance RRG of America
Preferred Physician Medical Risk RRG – Anesthesiologists
Emergency Medicine Professional Assurance Company

Part II: MEMBERSHIP IN SCRUBS RRG

What are the eligibility requirements for membership?: SCRUBS RRG's founders believe that quality physicians, as well as specialty specific risk management, are key elements, but just the beginning of a unique clinical application process. Interviewing candidate group leaders, reviewing patient safety standards, and examining loss experience in terms of dollars and underlying causes of claim events, provides SCRUBS RRG with the information necessary to select superior risk.; SCRUBS RRG is available nationwide.
Why is a surplus contribution necessary in order to be insured by SCRUBS RRG?: Under the LRRA a RRG is a member owned insurance company, in which all insured’s must be owners and all owners must be insured’s. As such, all groups joining SCRUBS RRG are required to make a contribution to surplus. This contribution can in certain circumstances be spread over up to five (5) years and sixty (60) payments via financing options provided by SCRUBS RRG. In total, the contribution is equal to fifty percent (50%) of the fully mature claims made premium.; In order for SCRUBS physicians to provide the control to create security, stability, and favorable rates, outside investors are not allowed.
Can I finance my capital contribution to SCRUBS RRG or my insurance premium?: Yes, premium financing is available, as well as options for financing surplus contribution as noted above.; Various premium financing options are available, such as 25 % down and nine (9) equal payments. Simple interest is applied to the declining balance. Quotations for financing cost are available along with premium quotations.

Part III: SCRUBS RRG COVERAGE

What type of policies does SCRUBS RRG write?: SCRUBS RRG offers medical professional liability insurance coverage with various limits of liability under a "claims-made" policy featuring an incident trigger. The policy provides coverage for claims made against policyholders arising out of the performance of professional services rendered, or that should have been rendered, by the insured during a coverage period specified in the policy. Claims asserted against an insured are only covered when they relate to an incident that took place during the term when the policyholder had coverage with the Company and only if such claim is reported to the Company during the period of coverage.; Multiple locations can be covered through one policy and prior acts coverage is available to include terminated locations. SCRUBS RRG's policy provides a "run off" option for terminated locations.
Is SCRUBS RRG assessable?: No. SCRUBS RRG offers only non-assessable policies. There are laws or judicial decisions that would result in the imposition of assessments on members of the company.
Are there mandatory deductibles?: No. There are no mandatory deductibles.
What limits are available?: Various limits are available to members; from $100,000 per claim to $1,000,000 per claim. Individual policy aggregates are three times the per claim limit, and physician group policy aggregates are determined on a case by case basis.; In states where the statutory maximum limits are lower than set forth above, the maximum limits of coverage will be those allowed by statute.
Can additional locations/insured's be added once the group has signed the policy?: A group opening a new location may add that exposure to their existing coverage or start a new and separate SCRUBS policy.; New practitioners can be added once the physician has submitted an individual physician application which has been approved by the underwriting team. Insured's are encouraged to adopt SCRUBS RRG’s standards for training and practice history into their criteria for recruiting.
Will SCRUBS RRG expand its geographical coverage to all 50 states?: SCRUBS RRG is licensed in Nevada and will expand throughout the U.S. As a RRG the process of registering in a new state is straightforward and can be accomplished quickly. If your state is not listed, feel free to call us and inquire as to how soon that process might be completed.
Will an extended reporting period or "tail" coverage be offered?: Yes. Tail coverage will be offered. The cost and structure of tail end policies will be determined under the guidance of the board of directors.; As stated elsewhere, tails are not necessary for individuals departing your group if you have a group policy.

Part IV: UNDERWRITING

How does the insurance application process proceed, and who is responsible for making underwriting and policy pricing decisions for SCRUBS RRG?: Groups interested in joining SCRUBS RRG must fill out a group application and an individual physician application. Applicants will notice that SCRUBS RRG's applications seek information that reflects the physician oversight of the underwriting process. SCRUBS RRG is not just seeking evidence of good practices and claims history, but rather wants insight into the quality of patient safety that exists in your practice and what progressive steps have been introduced to improve the risk management aspect of the practice.; The SCRUBS RRG underwriting team has put together a pre-underwriting system specific to Urologists to gain further awareness of the applicant's risk control status. A written report will be generated and incorporated into the underwriting decision, and this report will be shared with the applicant.; Should the applicant be offered membership in SCRUBS RRG and accept that offer, this pre-underwriting report will serve as the foundation for the RRG's future annual risk management benchmarking in cooperation with the insured group's continuing effort to improve patient safety.
How are premiums determined?: Premiums are calculated based on actuarially developed rates applied to the exposure base of the proposed insured. Since a RRG is built as a long-term solution to cost and stability issues experienced in the commercial market, SCRUBS RRG's rates must be expertly calculated on a conservative basis. In the medical professional liability industry, the actuarial firm Milliman is preeminent and does work for many medical professional liability insurers around the country. The physician leaders of SCRUBS RRG have directed Milliman to conservatively determine the rates that will be required to provide strong long term security to its members. Milliman has studied industry wide experience to help SCRUBS RRG set its state by state rates.; In the future, as SCRUBS RRG experiences claims and sets reserves with the assistance of Proclaim America, Inc. and the SCRUBS RRG claims committee, Milliman will study the adequacy of the RRG's own experience and incorporate this data into future rates. With the stringent underwriting of applicants, SCRUBS RRG anticipates that ultimately its own experience will be better than the general insurance marketplace, and the RRG’s results will support rates that are superior to those offered by other insurers.; Premiums, of course, must capture the cost of managing an insurance operation, and SCRUBS RRG's physician leaders are determined to maintain a cost of doing business that is below the traditional expense load factors seen in the industry.
Do all members receive the same rate or are there considerations made for other underwriting criteria?: All rates are calculated based upon Milliman's actuarial rate studies for each individual state and for rating territories within a state. SCRUBS RRG's physician leaders hope to provide better than average rates to all its members. Considerations are made for underwriting criteria such as individual exposures, historical results, quality of the facility's current patient safety program, and the insured's willingness to join SCRUBS RRG in working towards improvement in these areas.
Will program profits ever be used to reduce future premiums?: Yes. As a member owned entity, SCRUBS RRG has an intrinsic interest in returning profits to its member/owners. However, the short term goal is to provide security to members by maintaining financial stability. It will take a few years for the program to develop its own creditable loss history and for rates to be developed based solely on the RRG’s own experience. It is vital to the success of SCRUBS RRG that its member/owners maintain a long term view of success for the company. Obviously, the primary goal of creating SCRUBS RRG is to effect financial benefits to members via stable rates and eventually through dividend payments or perhaps even return of surplus.
Will members be required to meet underwriting criteria annually?: Yes. Although members will not be required to resubmit any pre-underwriting paperwork, they will be reviewed for loss experiences, changes in exposures, year's loss issues, as well as their participation in the RRG's joint patient safety improvement program.

Part V: CORPORATE GOVERNANCE

Who manages the operations of SCRUBS RRG?: SCRUBS RRG is governed by physician board members who individually sit upon standing committees including Underwriting, Finance, and Claim and Risk Management. Daily management is provided by SCRUBS RRG's contracted management firm SCRUBS Managers LLC. Support services are contracted to Marsh, an expert in RRG business affairs, who provide such services to more than twenty other RRG's in operation today.
What is the composition of SCRUBS RRG's Board of Directors?: SCRUBS RRG has a Board of Directors comprised of founding member Urologic groups.
Will there be annual audits of SCRUBS RRG's financial statements?: In cooperation with SCRUBS RRG’s Board and Finance Committee, the independent CPA firm of Shores and Tagman will perform an annual audit of the financial statements prepared by Marsh Companies.

Part VI: CLAIMS AND RISK MANAGEMENT

Who will be responsible for handling claims for SCRUBS RRG?: SCRUBS RRG's Claims and Risk Management Committee has selected ProClaim America, Inc., a recognized professional liability expert, to work on the adjusting of each SCRUBS RRG claim.
Who will represent me? Can I choose my own attorney?: ProClaim America has recommended recognized skilled defense counsels around the country to SCRUBS RRG's Claim Committee, and a panel of defense attorneys has been established. However, members can recommend an attorney of their choosing and as long as their credentials are excellent, SCRUBS RRG will most likely grant such a request.
Will SCRUBS RRG grant Consent to Settle Authority to insured's?: No. SCRUBS RRG wishes to avoid the rare but inevitable situation of having an intractable insured physician behave detrimentally to the greater good of the RRG. Where SCRUBS RRG faces such issues, the insured group will be asked to join SCRUBS RRG in reviewing the issues at hand to determine the final course of action.
Who will review the adequacy of SCRUBS RRG's loss reserves?: SCRUBS RRG's Claims Committee will interact with Proclaim America in the investigation of each claim and together determine the proper reserve amount for each claim. All claims will be reviewed by the SCRUBS RRG claim committee in preparation for its reporting to the SCRUBS RRG board at each board meeting. Annually SCRUBS RRG's independent actuarial firm, Milliman, will perform a loss reserve valuation study and certify the adequacy of the loss reserves.
How are settlement offers determined?: SCRUBS RRG physicians serving on the claims committee will work with ProClaim's adjusters to determine recommended settlement amounts. All recommended settlements will be approved by the SCRUBS RRG board within a general review of each claim.
Will this program offer risk management services?: Yes. Effective risk management is a primary goal of SCRUBS RRG. Since SCRUBS RRG is specialty specific, it will be able to examine losses and discover which factors of risk management result in the most impact to claims reduction. SCRUBS RRG will also benefit from the ability of its physician members to share ideas as to the risk management in place at their specific practice, thus creating an ideal setting for innovative risk management programs to flourish.

Part VII: REGULATION

Who has regulatory responsibility for the RRG?: The state in which the RRG is domiciled has primary regulatory authority over it. The insurance department of the domicile state is responsible for monitoring both the RRG's compliance with the LRRA and any specific requirements of that state of domicile. SCRUBS RRG will be regulated by the Nevada Department of Insurance, which is the state in which SCRUBS RRG will be domiciled.; SCRUBS RRG does provide its business plan and financials to each state as part of its registration with each state's Dept. of Insurance.

VIII: FINANCIAL STABILITY

In what form has SCRUBS RRG been organized?: SCRUBS RRG has been organized as a mutual insurance company under the laws of Nevada and operates under the Liability Risk Retention Act of 1986, as amended (the "Act"). A RRG is licensed in one state and registered in all other states that it anticipates doing business in. RRG's are not eligible for state insolvency funds but, as with Surplus Lines insurers, they are not required to pay into such insolvency fund assessments.
Does the program have reinsurance?: Yes. The company purchases reinsurance that provides a limit of up to $750,000 per loss, per insured, excess of SCRUBS RRG's primary retention layer of $250,000 per loss, per insured. The reinsurance is provided by four reinsurers of Lloyd's of London that all have an A rating of financial strength. SCRUBS RRG's managers have excellent relationships with the reinsurance markets to enter into favorable reinsurance treaties.
Is SCRUBS RRG rated?: No. New insurers are not issued a rating until they have been in business for 3 to 5 years. However, EMPAC RRG, which was founded with the same mission and by the same people involved in SCRUBS RRG, just received an A rating after only 2 years in operation.
Have doctor-owned insurance companies been successful?: The advantages of doctor-owned and operated companies over commercial insurance carriers are numerous, especially for a single specialty program such as SCRUBS RRG. With a doctor-owned insurance company, the physician led board of directors has complete control over the program. The result is savings, materialized through improved claims experience and efficient operation, returned to doctor-policyholders either in the form of dividends or reduced premiums. Financial success is also found in many cases where doctor-owned companies vigorously defend their insured’s when peer review indicates that negligence was nonexistent, rather than following the route of commercial companies who are too often willing to settle unwarranted and frivolous claims, despite the resulting effect on the physician's professional reputation. In addition, since physicians examine the claims, physician-owned companies such as SCRUBS RRG use this information to develop effective and acceptable risk management programs.; Today, RRG's have become solid financial enterprises in the marketplace as is evident in the fields of Anesthesia, Oral Surgery, Ophthalmology, and Emergency Medicine. Most importantly, RRG's like SCRUBS RRG maintain their strong commitment to providing a safer and more cost-effective healthcare environment.

Member Benefits

Ownership of your insurance company
Affordability and availability of coverage
Stability of pricing
Underwriting and risk management by practicing physicians
Security through strong reinsurance partners
All services are unbundled to qualified professionals working for you