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

These new markets are developing as the alternative insurancemarket legacy structures, such as retentions and single-parentcaptives, are reaching maturity, according to the study by ConningResearch and Consulting, Inc.

“Today's alternative market consists primarily of self-insuredretentions, often supported by captives, and represents nearlyone-third of the risk financing market,” said Mark Jablonowski, aConning analyst for the Hartford, Conn.-based Swiss Resubsidiary.

A new wave of alternatives are expected to emerge focused oncapacity rather than price, and competing more directly withtraditional insurance, he added.

The report cited capital market securitizations, governmentpools, group captives and risk retention groups as components ofthis alternative market.

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

Providing high-layer risk protection more efficiently thantraditional insurance, these alternatives can encroachsubstantially on market share. “Traditional insurers need to beactive in making their stake in the decision-making process, lestthey be left behind,” the report said.

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

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