The ART of Risk Finance
Opportunities and Challenges in Alternative Risk Transfer Solutions
Rising rates in the property market following two years of heavy catastrophe losses are leading to increased interest in alternative means to finance risk, according to panelists on Marsh’s New Reality of Risk® webcast.
More than half of audience members participating in a poll during the webcast said their organizations use alternative risk solutions. While alternative risk transfer (ART) solutions will not take the place of traditional insurance coverage options, rate uplifts starting at the end of 2017 mean that these products may fit better within businesses’ risk strategies. Duncan Ellis, Marsh’s US Property Practice leader, noted that one reason clients look at alternative risk finance is as a replacement for current coverage for which pricing or terms and conditions have become less favorable.
Alternative risk finance is certainly catching the eye of capital owners who want to diversify their investment strategies with assets that are not correlated to their core portfolio, said Chi Hum, managing director responsible for investor development at GC Securities, a division of MMC Securities. In fact, data from Guy Carpenter shows that alternative capital has grown by 150% between 2012 and 2018, reaching $95 billion at the end of last year.
In order to determine whether alternative solutions are a fit for their company, risk managers need access to good data and robust analytics, especially since, as the Excellence in Risk Management survey found, most C-level executives still need to learn more about ART products. On the other hand, risk managers often find it difficult to explain the benefits of these solutions to others within the organization. Therefore, company-specific insights are essential to get executive buy-in, noted Chad Wright, Marsh’s head of North America risk analytics and alternative risk transfer.
During the program, David Abbene, leader of the US casualty consulting practice within Marsh Risk Consulting, discussed the role of predictive analytics in helping organizations take a proactive approach to managing claims that might otherwise become problematic.