After formation in its home state, a purchasing group still must notify insurance commissioners in other states of the group's intention to do business in the other states. That notification must include information about the types of insurance the group will purchase and the identity and domicile of the insurance company from which the insurance will be purchased.

The insurer from which a purchasing group obtains insurance remains fully regulated by the states in which it does business despite the provisions of the Liability Risk Retention Act. However, the Act preempts regulation of purchasing groups in several ways. State law and regulation may not restrict the establishment of a purchasing group or prohibit an insurer from providing group insurance to the group. Purchasing groups also may not be subjected to requirements regarding how many members must belong to the group or how much insurance members of the group must purchase. The Act also preempts state law or regulation that would discriminate against purchasing groups or their members.

There are limits to the coverage that purchasing groups may obtain. For example, state restrictions barring coverage for punitive damages are not preempted by the Act. Also, the insurance purchased by the group must be obtained on a group basis and must cover insurable risks that are similar among members of the group.

Purchasing groups benefit from their development of shared risk management experience and from greater bargaining power with insurers. Also, individual members of purchasing groups may benefit from aggregate limits that may be significantly higher in group policies than in individual policies.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.