ART or Alternative Risk Transfer
Alternative Risk Transfer, often referred to as ART, means using techniques other than traditional insurance 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, as the insured party assumes a portion of its own risk in exchange for lower premiums or a reduction in net cost of insurance.
Some Alternative Risk Transfer strategies can give capital market investors a more direct role in providing protection to business. Characteristics typical for ART strategies 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
How Does Alternative Risk Transfer Help Protect Your Business?
Risk-financing vehicles used in ART can take on several different forms, with varying degrees of risk. ART can blend traditional insurance and reinsurance with forms of self-funding. Plans with the least risk, complexity and expense generally provide the least coverage. The more risk retained, the greater the potential benefits. Complexity and administrative expenses can grow as well.
Common Alternative Risk Transfer strategies include:
- Loss-sensitive insurance plans, your premiums are based on your losses.
- Risk-purchasing groups of individuals purchasing liability insurance.
- Self-insured retention plans.
- Protected cell captives, allows you to rent a captive while ensuring complete separation of assets, capital and surplus between you and other participants.
- Self-insured groups and pools.
- Captives, owned and controlled by their insured parties.
- Group captives, owned and controlled by multiple insureds.
- Agency captives, typically structured like rent-a-captives.
Benefits of Alternative Risk Transfer
ART has gained popularity in part because the insured:
- Does not subsidize others whose premiums are inadequate to pay their claims.
- Gains access to profits generated from current insurance premiums.
- Controls who share risks
- Gains stability and predictability on premiums.
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