Despite falling premiums and expanding coverage in the traditional market, buyers have not turned their backs on alternative risk-transfer options, according to NU's “State of the Market” survey. Nearly half (49 percent) said they are still considering ART optionsincluding captives, finite reinsurance and catastrophe bonds. Given the uncertainty of pricing in the traditional market over the long term, that doesn't surprise me. How about you?

Half of the 132 risk managers queried said it would be at least somewhat important (18 percent, highly so) to establish or increase the use of captives over the next several years. There is plenty of room for growth in this area, as 71 percent of risk managers surveyed do not have a captive in place.

(The survey was sponsored by Miller, an independent, specialist, wholesale insurance and reinsurance broker based in London, operating internationally as well as at Lloyd's. For a more comprehensive look at the survey results, click here.)

This trend was confirmed by the annual “Risk Manager Compensation Survey,” conducted for Logic Associates, the risk management fields top recruitment service. That survey of 1,475 risk managers–sponsored exclusively by NU–found organizations of all sizes holding steady in terms of how high a percentage have captives, with many categories seeing ART market participation on the rise. (Survey results will be featured in next Monday's edition of NU, available on NU's Web site by Friday afternoon.)

This means that risk managers aren't quick to abandon their ART facilities just because insurers decide to start slashing prices and giving coverage away. Buyers are understandably wary of depending too heavily on their carriers for coverage and then getting caught short if the market hardens again.

It also shows that once buyers leave the traditional market, they are unlikely to return in droves. It takes time and money to set up a captive, and risk managers must put their reputations, even their careers on the line to convince their CFOs, CEOs and boards to go along for the ride.

Thus, once they've gone captive, they don't come back. That's why the percentage of premium dollars flowing to the ART market keeps rising, with the total usually estimated at over half the commercial market.

That loss of marketshare for traditional insurers could get even more skewed if ART organizations are successful in convincing Congress to expand the Liability Risk Retention Act to allow property exposures to be placed via risk retention groups. Say goodbye to billions more in commercial premiums! (To read more about this development, click here.)

At what point, when it comes to big commercial buyers, will the so-called “traditional” market become the “alternative” market, with self-insurance vehicles the norm rather than the exception? Or is that the case already?

Special Reports /

Risk Managers Are ART Lovers

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