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ALTERNATIVE RISK TRANSFER In a soft market (insurer cash flow rating period)
most insurance buyers substantially reduce or eliminate the
risk they “retain”, choosing to use first-dollar guaranteed cost insurance
because it is such a bargain. In TODAY’S
marketplace “retention” of risk has become necessary if not
dictated. The buyer assumes retaining
more risk will pay off in reduced insurance costs. HOWEVER, be prepared, it may be necessary
for a buyer of insurance to substantially increase deductibles, move to a
loss sensitive rating plan (Retro), consider some form or combination of self
insurance, or utilize the Alternative market as a vehicle to transfer risk. Captives –
whether wholly owned, group, or rental – are available. Business Owners should expect this
option. The Federal Risk Retention
Act should be presented. Other
options must be explored. Risk
Retention Group (RRGs), Risk Purchasing Groups (RPGs), Cell Captives
or RRGs, and Self Insurance with Stop-Loss Excess Insurance should all be
identified and understood. The primary key for Business Owners to save is by
retaining some of the risk. This will
require the Business Owner to implement an effective safety and risk control
program. If losses are not avoided or
mitigated, they will come directly out of the business. Part of any decision to retain risk must
include a commitment by the Business Owner to invest in an effective safety
and risk control program. This effort
should be outsourced to be most effective. During cash flow/soft market periods, Insurance Companies
pay little attention to exposure analysis and risk underwriting, simply
satisfied to obtain more premium to invest.
Hard reality has caused the insurance industry to stumble along trying
to find the right direction, with the insurance buyers again caught up in the
confusion. Professional Risk and
Insurance managers, who have experienced themselves over the years how this
MOVIE plays out, are able to Advise and DIRECT their clients to the best
solution available for their situation. |
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