Tag Archives: Alternative Risk Transfer

Med Mal Alternatives

Two reports published yesterday by ratings agency A.M. Best on U.S. captives and risk retention groups (RRGs) point to continuing growth in these alternative market mechanisms, even amid soft market conditions. A number of trends are highlighted, but one interesting  nugget is that medical malpractice accounts for a significant portion of business for both captives and risk retention groups. According to the reports, medical malpractice continues to be the dominant line of business for domestic captives (close to 40 percent), while medical malpractice (claims made) accounted for 43 percent of RRG business in 2006. Which leads us to conclude that despite greater stability in the price of medical malpractice insurance and some improvement in the tort environment, doctors are not looking to return to the traditional market in a hurry. Check out I.I.I. updates on captives and alternative risk transfer mechanisms and on medical malpractice online.

Room For Growth

For traditional insurers looking to recapture some of the business lost to the alternative market, specifically the captive market, all bets are off. Or at least the going may be getting tougher. Despite increased competition and soft pricing, growth in captive insurers remains strong, and a new study from Aon indicates there is room for further growth – substantial growth at that. According to Aon, contrary to popular belief, over half (53 percent) of the world’s top 1500 companies (G1500) do not currently own a captive. Regionally there is considerable room for captive growth. Even in a mature market like the U.S., captive ownership by G1500 companies is at just 42 percent. In markets like Asia that traditionally have not been extensive captive users, the percentages are lower. Only 14 percent of Japanese G1500 companies have a captive for example. Captives are the oldest form of alternative risk transfer vehicle, dating back to the 1950s. Direct access to reinsurance markets, tailored coverage, and greater control over claims are just some of the reasons why corporations form captives. Cost or lack of coverage in the traditional market is another. Check out I.I.I. info on captives and alternative risk transfer mechanisms online.

ART Info

Alternative Risk Transfer (ART) market mechanisms cover 30 percent of the U.S. commercial insurance market, yet general understanding of them is limited. For anyone grappling with the concept, an I.I.I.-penned chapter in the recently published Handbook of International Insurance hopefully will shed some light. The chapter “An Overview of the Alternative Risk Transfer Market” explains that the concept of ART defies a precise definition in part because the broad range of risk products that can be defined as ART has expanded over time as product innovation continues. The chapter covers the major categories of ART solutions commonly found in the market today, including captives, self-insurance, risk retention groups, finite risk (re)insurance, catastrophe bonds and government programs. I.I.I. also has additional information on captives and other risk-financing options available online.