Alternative Risk Transfer Market - Explained
What is the Alternative Risk Transfer Market?
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What is an Alternative Risk Transfer Market?
Alternative risk transfer (ART), also known as structured insurance, is a form of coverage or protection used by risk-bearing organizations other than by conventional insurance and reinsurance. In simple terms, alternative risk transfer, or ART, is an alternative to insurance where a corporation can transfer risk without the use of a conventional form of business insurance. Its solutions are particularly useful where traditional insurance is not effective in unique and challenging situations. It provides unique ways of managing risks that are increasingly complex to businesses that can not be covered by conventional insurance and have led to increased use of the risk transfer form. The alternative market for risk transfer includes Risk Retention Groups (RRGs), insurance bins, and captive insurers.
Back To: INSURANCE & RISK MANAGEMENT
How does the Alternative Risk Transfer (ART) Market Work?
The area of alternative risk transfer grew out of a series of insurance capability crises in the 1970s through the 1990s that forced conventional coverage purchasers to search for more flexible forms of purchasing security. Across two key categories, the alternative risk transfer market is broken down into risk transfer via alternative products and risk transfer via alternative carriers. Most of these approaches enable investors in capital markets to play a more direct role in insurance and reinsurance security, thus increasing convergence between insurance and financial markets in the wider field of alternative risk transfers. The alternative market for risk management offers an organization multiple forms of policy-making options, giving it a customized existence.
Options for Companies when choosing Alternative Carriers
The main market for alternative risk transfer is self-insurance, where businesses are still government-regulated, but allowing a company to have flexibility through cost reduction and faster demand procedures. The combination of risk transfer and retention provides client security at low cost, for the benefit of both the insured and insurance companies. The following coverages are common to self-insurers:
- insurance for employees
- general liability
- vehicle liability
- physical injury
Regardless of the fact that the various States have strongly regulated compensation and automotive liability of employees, the growth of self-insurance has continued in these two sections; as cost-effective and improved risk protection are typically associated with self-insurance.
Alternative Risk Transfer Market Options
Unusual mediums used for common risk include:
- Risk Retention Groups (RRG): self-insurance (money) contributed by several small to medium-sized enterprises.
- Self-Insured Retentions (SIR): an option of setting aside the capital (money) to be used in cases of losses.
- Earnings Protection: policies available during a certain financial period through a common loss of income.
- Captives: a secondary (subsidiary) insurance company that insures only the parent company.
- Rent-a-Captives: captives exchanged by several firms that are not the parent company but the parent company manages the funds.
- Finite Insurance: multi-year policies on insurance.
- Multi-Trigger Policies: policies caused by a different timeframe by separate events.
- Integrated risk: policies covering a range of different risks (some of which are not regular insurance risks).
Other Alternative Risk Transfer Market Options
Capital market-based mediums include: Securitization: this is a procedure for combining risks into debt/equity securities that can be exchanged on financial markets. Insurance-linked bonds: this option includes bonds that completely or partially lose their principal/interest if a predicted event occurs. Contingent Surplus Notes: In this option, the notes the capital (money) supply holders when there is a loss. Weather Derivatives: policies are made available for the occurrence of certain extreme weather events in this option. Cat-E-Puts (Catastrophe Equity Put Options): this option allows a company to sell/emit equity at a fixed price in case of an event of a disaster.
- What is insurance?
- Captive Agent
- Independent Agent
- Captive Insurance Company
- Combined Ratio
- Claims Adjuster
- Capital at Risk
- Assigned Risk
- Incurred But Not Reported
- Qualified Actuary
- Cession (Re-Insurance)
- Burning Cost Ratio
- What is an insurance contract?
- Accidental Means
- Anti-stacking Provisions
- What is an insurable interest?
- What are the common categorizations of insurance?
- National Association of Insurance Commissioners
- Insurance Regulatory Information System
- American Academy of Actuaries Definition
- American Association of Insurance Services Definition
- American Council of Life Insurance Definition
- American Insurance Association Definition
- American Risk and Insurance Association Definition
- LLoyd's of London
- Associate in Insurance Services (AIS) Definition
- Associate in Loss Control Management Definition
- Associate in Marine Insurance Management Definition
- Associate in Personal Insurance Definition
- Associate in Reinsurance (ARe) Definition
- Associate in Risk Management Definition
- Associate in Commercial Underwriting Definition
- Associate in Insurance Accounting and Finance Definition
- Associate in Surplus Lines Insurance Definition
- Chartered Insurance Professional Definition
- Chartered Life Underwriter Definition
- Chartered Property Casualty Underwriter Definition
- Vehicle insurancePrivate Passenger Auto Insurance Risk Profile
- Underinsured Motorist Coverage
- Uninsured Motorist Coverage
- Omnibus Clause
- Health Maintenance Organization
- Capitated Contract
- Point of Service Plan
- Children's Health Insurance Program
- Disability Insurance?
- Credit Disability Insurance
- Life Insurance?
- Cash Surrender Value
- Absolute Beneficiary
- Acceleration Life Insurance
- Accelerated Benefit
- Accelerated Option
- Accelerative Endowment
- Charitable Gift Life Insurance
- Incontestability Clause
- Waterfall Concept
- Assumed Interest Rate
- Clean Sheeting
- Hazard Insurance
- Homeowners, Renters, and Fire Insurance?
- Participating Community (Flood Insurance)
- Insurance Considerations for Business
- Business Liability Insurance
- Commercial General Liability
- Liability Risk Retention Act
- Excess Insurance and Umbrella Insurance Policy
- Business Interruption Insurance
- Key Person Insurance Definition
- Own-Occupation Policy
- Self-Funded Health Insurance Plan
- Basket Retention Policy
- Commercial Blanket Bond
- Alternative Risk Transfer Market Definition
- Commercial Property Casualty Market Index Survey
- What are the primary obligations of the insurer?
- Earned Premium
- Reservation of Rights Letter
- Collateral Source Rule
- What are the primary obligations of the insured?
- Insurance Premium
- Affidavit of Loss
- What is the general structure of an insurance contract?
- Ambiguity Principle
- Accommodation Line
- What are the common disputed provisions in an insurance contract?
- Absolute Exclusion
- All Risks Clause
- What is required for the termination of an insurance contract?
- Risk Management
- Professional Risk Manager
- Associate in Management (AIM)
- Financial Risk Manager
- Forecasting (Business)
- Objective Probability
- Unconditional Probability
- Enterprise Risk Management (ERM)
- Operational Risk
- Business Recovery Risk
- Political Risk
- Asset Protection
- Performance Bond
- Barra Risk Factor Analysis Definition
- Above Ground Risk (Mining Industry)
- Bumbershoot Policy (Maritime)
- Abandonment Clause (Boat or Vessel)
- Bobtail Liability Insurance (Trucking Industry)
- Anti-Indemnity Statute (Construction)