Risk Retention Groups

Raymond Moss: Welcome to the podcast that accompanies the DOT Analysis platform, where we discuss real-time trends in the truck insurance market and explore answers to the questions you're not allowed to ask. I'm Ray.

Ben Curtis: And I'm Ben, and this is The Inside Lane.

Raymond Moss: I finally stumbled across a video the FMCSA put out as a marketing piece, and I finally learned what MODUS means. I'd been wondering for months. It's the new system from the FMCSA. Do you know what it means? I've been wondering because it sounds like "motor" and "US" — like Motor United States. It's got to be a cool acronym, right?

Ben Curtis: You've been wondering? I thought you knew the whole story. You haven't heard this story?

Raymond Moss: I have not heard the story. Tell me the story.

Ben Curtis: I got a hold of the meeting notes from a recent FMCSA meeting. I thought we talked about this. Well, enlighten me and our audience.

Ben Curtis: Supposedly the FMCSA had a bunch of issues they were dealing with, so they hired a consultant PR firm to come in and help straighten them out. The story goes like this: the PR firm walks into a meeting at the FMCSA and says, "We have a major problem. Citizens are concerned about safety with these 80,000-pound missiles flying down the highway." He holds up a hand. "Let me stop you right there. First of all, don't refer to them as citizens. They're the motoring public." Skeptically, the room nods. "And they're not 80,000-pound missiles. They're motor carriers." "Sir," someone responds, "they don't even carry motors." "Details," he says. "Never let those get in the way of branding." Everyone in the room cautiously nods and starts jotting down notes.

"So what do we tell the motoring public?" they ask. "Tell them less," he says. "Less? But they're concerned for their safety, sir." "Exactly," he says. "They'll feel safer if they don't know how afraid they should be." The room starts to fill with excited energy. "Brilliant!" they say. "While you're here, we've got another issue. We spent years developing a safety scoring algorithm so complicated it rivals Einstein's theory of general relativity." "No problem," he says. "Well, what do we call it?" they ask. "Call it BASIC scores," he says. "But they're anything but basic." "Exactly," he says. "Expectations are everything." Everyone in the room is furiously scribbling notes by now.

"All right, last question," the director says. "We're launching a new online system. It's going to confuse everyone, delay filings, crash at the worst possible times, and probably keep half the trucking industry on hold for six months. We need a name that inspires confidence." He smiles and says, "Everything grinding to a halt sounds like movement to me." "But don't you think that's a little too on the nose?" the director asks. "What if people see through it and we look like fools?" "You're right," he admits. "Why don't you use the Latin equivalent instead and call it MODUS?" The room erupts in applause.

Raymond Moss: I will admit that the video I found from the FMCSA on YouTube didn't quite have that story baked in.

Ben Curtis: It didn't sound quite like that. Did they hide some of the details?

Raymond Moss: They must have hidden some of the details. We'll put a link to that FMCSA video in the show notes, though, because it's the funny thing — it is the Latin term for movement.

Ben Curtis: Let's get the actual definition up here. In Latin, it means movement, motion, or gesture, which can also mean emotion or passion, and can refer to physical or political disturbance such as a riot, revolt, or commotion. So they definitely focus heavily on the movement aspect.

Raymond Moss: See, that's great — MODUS sounds like "motor" and "US" and it's us. Now they've also achieved the second half of that definition with breathtaking perfection. That's fantastic.

Ben Curtis: They did. We're going to do a deep dive soon on one of our upcoming episodes and unpack more specifics around the MODUS changes. It's been a huge topic of conversation, not just among our clients, but across the industry as a whole. Authority types changing, that's massive. Filing issues and new authority specifically — what a mess.

Raymond Moss: I feel bad for a lot of motor carriers who have suffered through that. It's so frustrating. More to come on that.

Ben Curtis: For sure. Issues logging in, claiming your DOT number, DOT status being messed up, and then in general the structure of data is totally different. Depending on how you're using it, that may or may not be front of mind, but it definitely affects the way this data is flowing through the industry and the various platforms that use it. Very interesting topics to get into on a soon-to-come episode.

Raymond Moss: Absolutely. We'll get into all the minutia of that, hear some feedback, and cover some real-world stuff.

Ben Curtis: In the meantime, let us know if you've got specific questions or comments related to MODUS and we'll make sure to cover that in the next episode.

Raymond Moss: That'll be fun. We can't promise we'll get to all of them — that's probably too many — but we'll weave some of the most hard-hitting ones into the feedback we've gotten from clients.

Ben Curtis: Absolutely. All right, should we jump into risk retention groups today?

Raymond Moss: That sounds good. You want me to pull anything up in Market Intelligence?

Ben Curtis: Why don't we just tell everybody what they are? I think some people are very familiar with them. Others may not know a whole lot at all. It's kind of a weird category, to be honest.

Raymond Moss: It definitely is. I don't know if I'd call it weird, but it's not the same as all the big markets. It's a different animal in and of itself.

Ben Curtis: I looked it up to see what the origin of these is. What's the actual framework around them that's different? They're covered by a law called the Liability Risk Retention Act of 1986. Not a new thing at all.

Raymond Moss: Very cool. So they've been around. It's not like it's a brand-new thing.

Ben Curtis: That law allows businesses with similar operations to self-insure their liability risks by forming a member-owned insurance company, which can then operate nationwide under a single state charter. That's a pretty unique difference from a traditional insurance company, which has to independently file in every state. That creates pricing differences, paperwork differences, and other variations across states. This charter allows them to cut through some of that and offer much easier access into various states.

Raymond Moss: As I understand it, and it's kind of fun to follow these different threads in the market, even being in the industry for almost two decades I'm constantly learning stuff. With risk retention groups, part of being one is that there are also drawbacks. It's not just "clear the paperwork and now you don't have to file in every state." There are reasons motor carriers avoid them, reasons people don't want to be in one, and reasons some people do. It's interesting to unpack.

Ben Curtis: For sure. Let's go through a few of the pros and cons of risk retention groups compared to more traditional insurance companies. A traditional insurance company often has a rating, and that can be pretty significant.

Raymond Moss: An AM Best rating, yeah.

Ben Curtis: Depending on the type of loads you're hauling and the customers you're working for, that can be really significant.

Raymond Moss: I was working with one of our clients a few weeks ago. They had placed a line of coverage for a motor carrier, a pretty large fleet, with a non-AM Best-rated market. The client was jittery because he wasn't sure if everyone would accept his certificate of insurance since it wasn't an AM Best-rated paper name. A couple of days into the policy, he breathed a sigh of relief — everyone was accepting it. But in the past, he's had it be a non-starter for some shippers. They just won't accept it. I've totally experienced that.

Ben Curtis: Definitely something to be aware of before getting put into an RRG without really considering that. Another interesting thing is that many of the RRGs I've looked at have what they call fully earned premiums. It's a term some people might be familiar with, but it often means you're not going to get a pro-rated premium back if you cancel midterm. That can be a surprising thing if you weren't expecting it.

Raymond Moss: That's so fascinating. Does that mean they're all full-pay policies? That would be a crazy amount of money. I don't know if I have my whole understanding wrapped around that. If anybody in the audience has insight, we might ask a couple of clients who use these and figure out the answer. That'd be interesting to know.

Ben Curtis: I'm sure there's variation across the various RRGs. But certainly something to keep an eye out for. They're easier to get into in the sense that they have a common offering, so there's not as much state-to-state variation. They also tend to be very specialized, both by operation type and geographically. Most of these risk retention groups you'll see are centered around a state or a couple of states, so they seem geographically specific in many cases.

Raymond Moss: Is that because of the footprint of their distribution, though? I wonder.

Ben Curtis: I don't actually know for sure. We're doing an early episode on this where we're just exploring some of the stuff we've seen within our platform. We'll get into our DOT Analysis platform and look at a few of these. Maybe it's a little premature. Maybe there's more market data out there that we should know or could know. But at least we want to start the conversation and bring awareness to what we can see. I definitely don't have all the answers on these things, so there's lots of detail that could still be filled in.

Raymond Moss: It's fun being able to see it all in the market, because this is just one aspect. The crazy thing about having a 10,000-foot view of the market where you can zero in is you get access to see all of this. It's super fun.

Ben Curtis: For sure. To summarize, they certainly have some pros and cons. It doesn't mean they're automatically bad. They definitely have risks to be aware of: the rating, or lack thereof, in many cases; the fully earned premium; the fact that they're not necessarily as sophisticated as a traditional insurance company. A lot of these have outsourced their underwriting because they pop up, decide they want to take some trucking risk, and want to collect that tantalizing premium that's out there. They don't necessarily know the industry well.

A lot of times they've outsourced the majority, or all, of the underwriting to various MGAs. That's not necessarily a bad thing, but it's different and something to be cautionary about. You're not necessarily getting into a trucking-specific organization that knows the industry well, which can obviously have a whole set of challenges. But that being said, they often accept risks that other insurance companies might not be interested in. They might give you the ability to pick up insurance when you're having trouble getting it through a traditional insurance company. And if you're in one of their specialized markets, they could have an offering that's great for you. So as we like to say, we're not saying anything is specifically good or bad. We just want to provide information on how to understand different parts of the market, and then you can identify the use cases where it's appropriate and how to leverage it.

One of the really interesting things a lot of our clients are doing is looking at these as opportunities, because they have such interesting collections of policies. And because of some of the nuances of these risk retention groups, there are sometimes really juicy opportunities for prospecting.

Raymond Moss: That is very true. People lump their assumptions in. They look at a book of business that's got a lot of red in it and think, "I want to avoid everything there." But there are diamonds in there. If you have the right tools to find them and mine them out, there's a cool opportunity. What's better than opportunity?

Ben Curtis: Do you want to pull up a risk retention group? We'll take a look and see what's going on.

Raymond Moss: Let's do that. All right, here we go. I'm pulling up the DOT Analysis Market Intelligence dashboard. I've got the whole market pulled up. Tell me where to go — what should we look at first?

Ben Curtis: We were looking at A1 the other day. You want to take a look at A1?

Raymond Moss: We can do that. A1 — all right, they've got a couple of paper names. We'll grab the logical insurer: A1 Commercial Insurance, RRG, or Risk Retention Group. One interesting thing I see in the name all over the place on these different books of business is that it'll say something and then "RRG" or "Risk Retention Group." It's in the name of their paper and in the logical insurer name.

Ben Curtis: I don't know if that's actually a requirement, like a legal requirement. There are a few papers out there that maybe have "specialty" in the name, and some of those appear very much like an RRG, whether they officially are or not. So I wonder if it's a requirement to have that in the name.

Raymond Moss: That is a good question. I don't know the answer, but that would be cool to find out.

Ben Curtis: We've been looking through the platform. There are literally dozens, if not hundreds, of these RRGs out there, and many of them do have that in the name. So it does seem to be a very common theme, which is helpful if you're looking for them.

Raymond Moss: That is helpful. Here's something I always see — not always, but a lot of times. When I pull up a risk retention group and their book of business in Market Intelligence, I'll look at their current renewal rate and it's usually way below the market average. It always seems like an abysmal ability to renew business. So even if it didn't have "RRG" in the title, that would kind of give it away, because they seem to struggle to retain business. That's one opportunity. The second thing I always notice is on the relationship duration: even if they have a certain number of clients, most of those relationships are super early. Young relationships, because again, they can't hold on to business. In this case, look at that — 86% of their book of business is in the first year. They get new business, and then it goes right out the door.

Ben Curtis: I want to point something else out, because just looking at this snapshot, you could be tempted to think, "Maybe this is just a brand new player in the market." But you can use our time filter. Let's go back a year and see what they looked like, because they have about 800 policies right now.

Raymond Moss: That's a good idea. 887 policies right now. A year ago, 788. So around the same amount. And still 84% new business.

Ben Curtis: Back that up two years and see what happened.

Raymond Moss: All right. A little under 800 two years ago, and now 669. So they are growing, but look at that — it's almost all new business. I shouldn't say "all," but so much of it is just new business. It's a treadmill of churn. If you're putting something in that market, you just know it's going to pop right out the next year. That's difficult.

Ben Curtis: What a fascinating insight, though. Every year they just pump a ton of new business in, and then it all drops off the bottom. They're like operating a sieve.

Raymond Moss: Don't get me wrong, there are use cases for that. Sometimes there's what I'll call a "recovery market" — a motor carrier working on their scores, working on some operational issues, working on straightening out their drivers. They need to go into a market where they can still have insurance. We don't want to shut them down. But they're there because they need to recover and improve some operational and safety things, knowing they want to get to a better insurer down the road.

Ben Curtis: No doubt. Now we did look at several of these before the show, and some of them are pretty sketchy. But scroll down to the safety on this one. They're not churning because they've got all bad business in their book. Two years ago, their book was 17% red. So what?

Raymond Moss: They still have some green. Let me go back to now. Look at that.

Ben Curtis: Their red ISS is a lower percentage than it was two years ago.

Raymond Moss: They're actually doing better quality underwriting.

Ben Curtis: And yet they're still just churning business. So this would be a fascinating book to unpack in Market Explorer, dig through, and find out where most of this business is moving. Is there any business in there that's interesting?

Raymond Moss: Let me just point this out for those of you on Apple Podcasts or Spotify who aren't looking at the video. Ben said they had 13% red ISS, but they also have 5% yellow and 37% of their book is green ISS. That means it's been assessed, it's got an ISS score, it's not in the un-scorable formula — it's actually green. So there's some decent stuff in there. Fascinating.

Ben Curtis: Once again, for those only listening, that doesn't add up to 100%. So 44% of their book is non-scored — there's not enough data to have an ISS score.

Raymond Moss: Because they have a lot of small single-unit guys in there, correct?

Ben Curtis: Right. But that's an important clarification: that green means there actually are, at least presumably, reasonable and safe motor carriers in there.

Raymond Moss: Absolutely. That's super cool.

Ben Curtis: Really fascinating. So where do we want to go from here? We don't have time to go through a whole list, but there are a bunch of these that exist. Let's talk about some of the other ones we can see and get an idea of how big this market really is and how much opportunity is here. One place we noticed this: I did the market update video that goes out to all of our clients every week, and we looked at Progressive's book last week. If we go to Progressive, this is really interesting.

Raymond Moss: You're going to pull Progressive up here. Let's clear that out and put in "Progressive" across all the writing papers across the whole nation.

Ben Curtis: Let's go down to the lost business area of Progressive's book. Obviously the key players are at the top, but if you start scrolling through this list and slow down a little bit as we scroll, once we get past some of the biggest main players, notice how many of these risk retention groups start to appear. I'll just read off a few as we see them.

Raymond Moss: Here we go. Motor Transport Mutual Risk Retention Group. OIDA Risk Retention Group. Southwind Risk Retention Group. Professional Transportation Risk Retention Group. National Transportation Insurance Company Risk Retention Group. There's a lot of them.

Ben Curtis: There are literally dozens in this list. So even if you don't know where they exist, it's interesting to see some of these big players in the market who are losing business to them. You can go and find this whole list. We could unpack each one and discover areas of the market or areas of the country where they exist, and the key markets they're writing in. Another one — go back to the menu and throw in American Forest Casualty, RRG.

Raymond Moss: I don't know if I've heard of American Forest Casualty. There we go — American Forest Casualty Company, RRG. Look at that. They're interesting. They're in the Northwest: Washington, Oregon, Idaho, and Montana. What a cargo look — they do logging and lumber. That's so fascinating. What a great bit of knowledge in the market.

Ben Curtis: Here's what I want to draw your attention to. We talked about how much RRGs tend to churn business, but look at this one. Look at their renewal rate and relationship duration.

Raymond Moss: Fascinating. This one's phenomenal because they do a niche in the market. That's so cool.

Ben Curtis: 41% of their book has been with them for five or more years. Now they only have 180 policies, but these guys know what they want. If you get in here, they seem to hold onto that business really well. I wanted to make sure to set out a contrast: risk retention groups don't all fit in a single category.

Raymond Moss: Yeah, that's phenomenal.

Ben Curtis: They certainly can have a place and could be tremendous value in the right setting.

Raymond Moss: Absolutely. That's so interesting. And I'm glad you pointed that out, because one of the things I have to constantly remind myself is that it's easy to draw conclusions — "this is bad, this is good." But that's such a poor way to look at any particular book of business. It's not that something is necessarily bad or good. It just is, and there are use cases and reasons behind all of these things. Isn't that the beauty of the society we live in — that you can find solutions for all these niche cases that are so phenomenal and actually serve the people purchasing the insurance well? I just love that. It's so interesting.

Ben Curtis: It's so important to keep that open mind. Evaluate it through your lens: how do I want to understand this? Is the opportunity that I might have business I want to place in one of these? Is it that I can prospect in a really powerful way out of these? Is it just understanding how they exist in the market so I'm educated and know how to talk about them, or give my customers the pros and cons of why we're using them or not using them? So very interesting.

The other interesting piece I want to mention: from my somewhat limited exposure to them, but with some research getting ready for this, it does seem like many of these struggle with distribution — meaning they have limited distribution. If you find one that's interesting for a prospect or customer, it's likely that they are looking for distribution and looking for submissions. They may or may not be that hard to get connected to. You can always try looking them up, reaching out directly, or finding out what MGAs they're distributing through, and see if you can get access to their markets. But many of the ones we've looked at are aggressively taking business, and if you hit their niche and timing right, they are taking business really aggressively. So it's very interesting to think about as far as submission for new business, especially if you're having trouble finding a market interested in a certain motor carrier.

Raymond Moss: That's cool. And I'll put it out there: if anyone knows somebody at American Forest Casualty Company Risk Retention Group, send them our way. I'd love to ask them some questions. That'd be super fun.

Ben Curtis: Great. All right, well, I think that's enough on risk retention groups for today. Looking forward to digging into MODUS and many other interesting topics in the days ahead, but for now, I'm going to sign off.

Raymond Moss: Thanks for joining us, everybody. Have a fantastic rest of your day.

Ben Curtis: We'll see you next time.