Alternative Risk Transfer: While it may not sound interesting to someone outside the industry, as an insurance professional it is amazing. Why this method is amazing is how flexible and broad the coverage can be. ART gained a lot of traction most recently through the capacity crisises over the last 50 years, when the insurance company marketplace was extremely conservative with their portfolios causing high pricing and limited coverage options.
The long story short: When you fund a captive, you are creating an insurance company. There are many types of captives and the primary objective is to insure the risks that stem from their parent group or group.
ART is used for outside the box risk reduction. Traditional insurance policies are very constraining with very specific coverage selections and exclusions. This is a risk transfer method for firms with over 10M in sales or 1.5M EBIT to finance risk with a much more skin in the game. It can be a very good investment for those companies that work with agents (like Deland, Gibson) that help them employ proper risk management techniques and strategies to allow for a return on investment and financial and tax flexibility.
If thinking about captive insurance there is a specific process that needs to be followed so it is important to consult with risk, financial and tax professionals. For more information please email cgibsonjr@delandgibson.com
