Alternative risk solutions offer additional protection not included in standard business insurance. These insurance contracts enable companies to access innovative, non-traditional risk mitigation methods.
The market conditions and significant increases in online business dealings have created many new exposures and risks for modern-day companies. Unconventional ways of transferring and managing risks can offer advantages to many businesses.
What Are Alternative Risk Solutions?
Alternative risk transfers and other solutions provide companies with risk management that differs from traditional insurance. Risk transfer typically involves alternative carriers, like captive insurers, or alternative products, like securities. This sect of the insurance market offers ways to reduce the use of standard commercial policies.
Who Should Consider Alternative Risk Mitigation?
Companies with low-risk profiles who actively maintain safe daily operations are a good fit for alternative risk solutions. Transferring greater risk to clients can result in solid results for financially stable businesses with good loss histories. However, alternative solutions can also benefit those with high-risk businesses or losses and can provide coverage for organizations with risks considered uninsurable by standard business insurance policies.
What Are Common Alternative Risk Management Strategies?
There are many non-traditional ways a company can cover exposures with alternative carriers or financial products, including:
Captives
A captive insurance program is a type of corporate self-insurance that enables companies to cover their unique risks. It is a wholly-owned subsidiary insurer that covers the exposures of its parent company or group. This method involves several businesses or organizations working together to share costs and mitigate risks.
Large corporations often use captive insurance companies to supplement commercial policies. Captive insurance offers tax advantages, greater control over coverage, and lower insurance costs. They safeguard businesses from specific risks that traditional insurers do not cover.
Self-insurance
Self-insurance makes up the most significant part of the alternative carrier market. With this structure, entities fund their losses instead of paying premiums to a third-party insurer. Companies often pay for claims from a pool of assets set aside for this purpose.
There are various self-insurance plans to fit an organization’s specific needs. Typically, companies limit their loss exposure by purchasing excess insurance. These programs can streamline the claims process and minimize costs, but the business retains the risk of funding claims.
Products
Insurance products like derivatives, securities, and contingent capital involve issuing a bond. Companies invest the bond’s proceeds to gain funds to cover liabilities. Businesses may choose securitization to manage exposures by bundling the risk and selling it to investors.
What Are the Benefits of Alternative Risk Solutions?
Using a captive program, self-insurance, or other means of transferring risk can have many advantages for businesses, including:
- Customized coverage
- Minimized costs and stable pricing over time
- Greater control over program structure, claims handling, and risk
- Coverage for things not protected by traditional insurance
- Direct investment options
Alternative risk solutions offer a way to supplement and reduce traditional insurance that can significantly benefit many businesses.
About Haughn & Associates
Founded by Michael Haughn in 1986, Haughn & Associates is a full-service, family-owned, independent insurance agency based out of Dublin, Ohio. H&A strives to provide the best possible price and unique insurance solutions across a myriad of industries, including construction, IT, Habitation & Commercial Property, Agriculture, and Engineering. Devoted to providing the best of business insurance, life and disability insurance, personal insurance, employee benefits, and bonds, H&A is proof that success lies in long-standing client relations and satisfaction. To learn more about how H&A can be of service to you, contact us at (877) 802-2278.
