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Alternative Risk Transfer

Alternative Risk TransferAlternative Risk Transfer (ART) represents the marketplace where nontraditional risk transfer approaches, such as captive insurance companies, are arranged. Additionally, entities and approaches included in this marketplace are pools, trusts, and risk retention groups (RRGs). Since ART includes self-insurance forms whether formal, informal, complete, partial or shred, it enables entities to:

  • Retain all or a portion of their risk
  • Retain all or a portion of insurance profits
  • More closely align their risk management program with the risks of the insured
  • Tie their insurance costs more closely to their own loss experience
  • Stop subsidizing unrelated risky businesses with poor performance

The use of ART is growing too, and it is now the largest premium segment of the insurance industry. Companies have realized that there is an advantage to an ART approach compared to commercial insurance options.

ART is available in multiple forms that differ depending on the amount of control over the program and the reward level. The least control and lowest reward is a commercial insurance option while the highest control and financial reward are a Self-Insured Trust.

CIC Services operates in the middle of this spectrum as a captive manager. There is more than one captive insurance option as well. Companies can choose between developing a Group Captive, Enterprise Risk Captive, and Traditional Captive.

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Captive Insurance

A Captive Insurance Company is a real insurance company (with policies, policyholders, claims, reserves, and surplus), licensed in an appropriate jurisdiction, formed to insure the risks of its owners and sometimes third parties.

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Group Captive Insurance

Group Captives are designed to help members decrease the costs of their existing commercial insurance programs (typically Worker’s Compensation, General Liability, Professional Liability, etc.). In this arrangement, participants purchase a minority share of an existing group captive facility in exchange for the ability to participate in the program.

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Enterprise Risk Captive

Enterprise Risk Captives are designed to protect the long-term health of a business(es) by insuring a broad spectrum of risks and accumulating wealth as loss reserves. They can essentially turn risk management into a profit center.

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Traditional Captive

These programs are typically used by larger organizations to completely replace lines of insurance that are written in the traditional insurance marketplace. These companies are typically owned by more sophisticated organizations that desire more control over their claims process, coverage terms, and have the balance sheet and risk appetite to take advantage of their size.

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