New alternative capacity markets are emerging that represent a more widespread challenge to the traditional insurance mechanism, according to a study released yesterday.

These new markets are developing as the alternative insurance market legacy structures, such as retentions and single-parent captives, are reaching maturity, according to the study by Conning Research and Consulting, Inc.

“Today's alternative market consists primarily of self-insured retentions, often supported by captives, and represents nearly one-third of the risk financing market,” said Mark Jablonowski, a Conning analyst for the Hartford, Conn.-based Swiss Re subsidiary.

A new wave of alternatives are expected to emerge focused on capacity rather than price, and competing more directly with traditional insurance, he added.

The report cited capital market securitizations, government pools, group captives and risk retention groups as components of this alternative market.

“When used as supplements, these alternatives support the traditional insurance market,” the report said.

Providing high-layer risk protection more efficiently than traditional insurance, these alternatives can encroach substantially on market share. “Traditional insurers need to be active in making their stake in the decision-making process, lest they be left behind,” the report said.

Stephan Christiansen, director of research at Conning Research, said the alternatives focus on the need for affordable risk capacity that will permit corporations to manage increasingly complex risk in the high-severity layers.

“At the same time, the availability of alternatives will become the impetus for traditional insurers to help clients stretch their capacity dollar,” he said.

Special Reports /

Study Sees Insurance Alternatives Beyond Captives

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