Alternative Risk Transfer: The Right Fit
Alternative Risk Transfer
When you are making the decision to self-insure, it is important to address specific areas to ensure it is a viable proposition. Important considerations when weighing alternative risk transfer include:
• The portfolio should be sufficiently large to warrant costs.
• There should be predictable loss patterns and long-tail business.
• Pricing of specific and aggregate coverage should be feasible.
• Self-insured retention and maximum potential loss should not expose the company to unacceptable financial risk.
• The company should be committed to improving the loss and safety record through proper monitoring and action.
Alternative Risk Transfer, often referred to as ART, means using techniques other than traditional insurance and reinsurance to provide your business with coverage. Alternative risk transfer is typically available to companies with low risk profiles and a dedication to maintaining safe operations, because the insured party assumes a portion of its own risk in exchange for lower premiums or a reduction in net cost of insurance. In many cases, ART gives capital market investors a more direct role in providing protection. Characteristics unique to ART often include:
• Multi-year, multi-line coverage
• Coverage tailored to a special need of an insured
• Coverage not generally available in the marketplace
• Insured retains some risk