There can be many reasons for looking outside the traditional insurance markets:  the need to contain costs, a decline in market capacity and unavailability of the right sort of cover being among the most common.  Flexibility is the key to best-fit insurance and, at Windsor, we are always prepared, when required, to turn aside from the more usual insurance products and consider the alternatives. 

The alternative risk transfer market has been around for most of the last century, but really began to take off during the liability crisis of the 1980s when many businesses struggled to obtain commercial insurance coverage.  New mechanisms for transferring risk began to develop.  Since then, markets have fluctuated and the impact of frequently occurring natural and man-made disasters has encouraged the innovative to seek and develop new ways of managing risk.  Some of the more common means of alternative risk financing that we have considered for our clients include: 

Captives: are special types of insurance companies set up by a parent company, trade association or group of companies to insure the risks of their owners.   Professionals such as doctors, lawyers, accountants have formed successful captives over the years.  Protected cell or rent-a-captives - companies that provide access to captive facilities without the user needing to finance its own captive - were introduced in Bermuda 20 years ago and have remained a popular alternative market mechanism. 

Self-insurance: is an arrangement in which companies retain all or part of their risk themselves and allocate funds to meet expected losses.  Self-insurance works well for many companies but expert advice is needed, both on the amount of risk that can sensibly be retained and on the financing mechanisms that provide the required funds.

Catastrophe bonds: developed following Hurricane Andrew in 1992 and the Northridge earthquake in 1994.  They are risk-based securities, sold via the capital markets, which allow insurers to diversify their risk and expand the insurance available in catastrophe prone areas. 

Self-insurance groups:  involve firms in similar industries or geographic locations pooling their resources to insure each other’s risks.  Their financial results compare favourably to captives and traditional commercial insurers.

Being able to offer alternative risk financing involves a thorough knowledge of the various tools available, and the ability to customise to each client’s particular needs.  Windsor has access to experts in the field of alternative risk financing and we are always happy to discuss a different way forward. 

“Sometimes, in insurance, you need to think outside the box and consider the alternatives.”