West Virginia State Life Insurance Practice Exam

What type of insurance company is formed to assume and spread the liability risks of its members?

1. Mutual Insurance Company

2. Joint Stock Company

3. Risk Retention Group

4. Fraternal Benefit Society

The correct answer is: Risk Retention Group

The correct answer is a Risk Retention Group. A Risk Retention Group is a type of insurance company that enables its members, who typically share a similar risk profile, to pool their resources to manage and finance their liability risks. By doing so, they can spread the risk among themselves, leading to potentially lower premiums and greater control over their insurance coverage. Members of a Risk Retention Group are often businesses or organizations within the same industry, making it easier for them to understand the specific risks they face. This structure allows for more tailored coverage to meet their unique needs, as the group operates under specific regulatory guidelines that promote safety and risk management. In contrast, Mutual Insurance Companies are owned by policyholders, where profits may be returned to members in the form of dividends. Joint Stock Companies are owned by shareholders and primarily focus on maximizing profits for those shareholders. Fraternal Benefit Societies provide insurance benefits to members united by some common bond but do not specifically focus on liability risks in the same manner as a Risk Retention Group does.