Alternate Risk Transfer (ART) - Insurance Strategies
Risk Management Alternate Risk Transfer is a fancy way of saying alternate methods of insurance and risk management, of which there are many. From the most basic alternative of going without insurance (self-insuring) to so-called "program business captives", there are a wide variety of strategies from which to choose. To understand why ART strategies are so popular it is important to understand a few facts about insurance pricing. ►Insurance Premiums are related primarily to economic cycles NOT primarily to claims. "The claims that recent increases in medical malpractice liability insurance premiums in Connecticut are attributable to overly generous jury verdicts are unfounded. The more likely explanation for the sudden rise in rates is the decrease in investment earnings of the medical malpractice insurers?" Professor Tom Baker, Director, Insurance Law Center, University of Connecticut School of Law Every time insurance industry profits decline sharply, the industry declares an "insurance crisis" - rates go up sharply, deductibles rise and underwriting guidelines tighten. ►Insurance Premiums have risen much faster than claims. Median medical malpractice payments rose 35 Percent from 1997 to 2001 (an average of 8.5% a year).
Average premiums for single health insurance coverage increased 39 percent over that time period (9.5% per year). (Source: National Practitioner Database) ►A small number of insured may be responsible for a large percentage of losses. National Practitioners Database: For example, in Florida, 6% of the doctors were found to be responsible for 51% of the malpractice claims. 2,674 out of 44,747 doctors have paid two or more malpractice payments. These doctors are responsible for 51% of total malpractice payments. 24 Florida physicians have paid 10 or more malpractice settlements since 1990. Needless to say, the 94% pay for the poor claims experience of the 6%.
ART Strategies Conventional insurance markets are one-year indemnity contracts designed to transfer specific hazard risks. Typical features of an ART strategy are: ►Multi-year, multi-line coverage ►Coverage tailored to special need of insured ►Provides coverage not generally available in the marketplace ►Risk retention by insured There is a multifarious trade-off between risk retention, complexity and cost among the various different ART strategies. Not surprisingly, the plans with the least risk, complexity and expense generally provide the least benefit. As more risk is retained, the greater and greater benefits can be obtained. Of course, complexity and administrative expenses grow as well. Windward Harbor can help you find, execute and manage the right strategy for you. We have listed the basic ART strategies below. ►Guaranteed Cost Insurance Plans Traditional insurance coverage. ►Loss Sensitive Insurance Plans Insurance coverage for a specific insured where the final premium is based on the insured's losses. ►Risk Purchasing Groups (RP's) Risk Purchasing Groups were created by the Liability Risk Retention Act of 1986. The purpose of the act was to break through the myriad of state insurance regulation in the hopes of making it easier for groups to purchase liability insurance. The act allows groups of individuals combine to purchase liability insurance while prohibiting states (regulators) or insurance companies from discriminating against them. ►Self-Insured Retention Plans (SIRS) The primary difference between a deductible and a self-insured retention is that a deductible amount counts against the total limits of the policy, reducing total coverage, whereas a self-insured retention plan provides limits of coverage in excess of the self-insured retention so that the amount payable under the policy is not reduced by the amount of the retention. ►Protected Cell Captives (Segregated Portfolio Companies) PCCs (SPC's in certain domiciles) are essentially rent-a-captive companies that ensure complete separation among program participants. According to the laws of specific domiciles, PCCs or SPC's generally guarantee complete separation of each cell's assets, capital, and surplus from each other. Because they can achieve economies of scale, rent-a-captives make captive insurance affordable for companies that would not otherwise be large enough to profitably own and operate their own captive.
Windward Harbor LLC owns a BVI licensed Segregated Portfolio Company - Windward Harbor SPC Ltd, which provides rent-a-captive services for selected clients on an annual fee basis. Each segregated portfolio has its own economic ownership, tax Id number and files a separate tax return. ►Self-Insured Groups & Pools (SIG's) While the concept differs slightly from state to state, SIGs work similarly in the nearly 40 states in which they are legal. A group of employers form a nonprofit corporation or trust and hire a professional to manage it. This new entity then purchases the insurance, meaning the SIG members essentially "own" their own workers' comp company. The group pools the money it otherwise would pay an insurer, earning investment income on funds held in reserve. If a SIG program cuts down on workplace injuries and claim costs, the surplus, or "dividend," from premiums is returned to members. Of course, if a company or the group as a whole has catastrophic losses, members pay the difference, up to a limit. Above that point, the group buys excess insurance to offset a single large loss or a combination of losses. ►Captives (See Captive Services) A captive insurance company is an insurance company that is owned and controlled by its insureds. According to Captive Insurance Companies Association (CICA), the first captive ever formed was in the late 1800s, and was designed to write more cost effective fire insurance policies for New England textile manufacturers that were hit hard by increasing market rates. Captives gained popularity in the 1980s as a result of the US liability crisis, particularly in the medical arena. As captives have continued to grow over time, employers are considering employee benefits as a new or expanded coverage. The more recent hard market and changing economy is expected to spur even more and rapid industry growth yet this year. Single Parent (Pure) Captive: A single parent captive is owned and controlled by one owner, typically the parent organization, and is formed as a subsidiary company. The captive subsidiary underwrites policies for the parent, and solely bears the risks of the parent. ►Group Captive: A group captive is owned and controlled by multiple insureds. They may or may not be related entities or a part of a homogeneous group like industry or trade groups. Typically, companies of similar size pool their risks in an industry captive with customized insurance plans. Similarly, companies of similar size in different industries can also form group captives to enjoy the benefits of a captive model. More recently, associations have been forming association captive insurance companies to offer captive services as part of their membership benefits. ►Agency Captive: Agency captives are companies typically owned by groups of brokers or other insurance intermediaries and are typically structured like rent-a-captives. ►Risk Retention Groups Risk Retention Groups were also created by the Liability Risk Retention Act of 1986, which provides for streamlined regulation. A RRG is an insurance company in every regard but has one very important regulatory distinction. Every RRG chooses a single state in which to be domiciled and regulated. The act provides that the RRG is then eligible to do business in all states. ►Program Business Captives Associations, regional producers and corporations who desire to assume some selected third-party exposure. Wayne Walker, Windward Harbor Insurance Management LLC
©Windward Harbor LLC 2004 Windward Harbor Insurance Management LLC is a licensed insurance manager in the British Virgin Islands with office in Pinehurst, NC, Atlanta, GA, and St Petersburg, FL.
Related News
|
 |
|
|
RELATED ARTICLES
Facts About Renters Insurance
If you rent an apartment or house, you might consider purchasing renters insurance.
Disaster Decision - Do You Need Insurance?
The expenses involved with owning a home can be overwhelming at times - routine maintenance, repairs, seasonal preparations, improvements. Not to mention taxes, fees, and all those monthly bills. Some homeowners, in trying to reduce their expenses, wonder if they really need disaster insurance.
Choosing the Best Life Insurance Option for You
Life insurance in the UK is becoming more and more popular with many people now realizing the importance and the benefits of a good life insurance policy. There are two main types of popular life insurance, both of which offer a range of invaluable benefits to UK consumers.
What to Look for in Good Health Insurance
Health insurance is a kind of protection that provides payment of benefits for covered sickness or injury. Included in health insurance are various types of insurance such as accident insurance, disability income insurance, medical expense insurance, and accidental death and dismemberment insurance.
Insurance Claim: Collecting Your Lost Wages
A couple months ago you were toolin' on down the avenue, minding your own business, when out of nowhere, this fumbling, stumbling man by the name of Freddie Fuddle flew through a Stop Sign and plowed into you with a gigantic, rip-roaring, screeching broadside. You were wearing your seat belt but it was still a thundering crash that wrenched and whipped you around the inside of your motor vehicle something fierce!
Car Insurance Rates ? Can You Lower Them?
Car insurance rates are prohibitive nowadays. Many families really struggle to pay the car insurance bill each month. And car insurance rates vary all the time. So if car insurance cost is an issue for you, what can you do about it?
Photography Insurance-Insurance for the Photographer
Part and parcel of establishing your own photographic business is establishing your own legal entity. This means establishing yourself for taxes. This is broader than the scope of this article, because every country has it's own business rules. Also every state in federal countries has different legal rules. The first thing you need to do is register your business according to your local rules, if you are unsure of this either take legal advice or go and see your local town hall and ask them about local legal requirements.
Eleven Money-Saving Auto Insurance Tips for Senior Drivers
Following a few simple tips and taking these measures will ensure that you are getting the lowest rates possible on your auto insurance policy.
Home Insurance Rates in Northern Ireland
A recent survey took the most popular type of home in the UK, the three-bed semi, and compared the quotes given by insurance companies for different postcodes around the country. Northern Ireland came in top for buildings cover with an average of £119.
Cure The Insurance Blues By Lowering The Cost of Your Premiums
Does the current amount that you pay on your insurance premiums keep you awake at night? If so you're not alone. In today's fast paced society many people are looking for ways to save money unfortunately this can lead to scrimping and watching where you spend every penny you make. Not only is this difficult it can also be a real pain in the neck and lets face it ? what's so fun about not spending money you worked hard to get in the first place.
Young Driver Car Insurance
It has become increasingly difficult to get young driver car insurance in the UK. The reason behind this is because the statistics for young drivers having a car accident are not very good. By definition, young drivers have very little experience of driving and thus have a greater chance of having a bump in their vehicle. Car insurance companies are obviously in business to make money and are understandably reluctant to insure such drivers. In most cases, companies will either offer a policy at a very high premium or refuse to insure the person altogether.
Health Insurance Coverage
Health insurance is something that everyone needs today. The rising cost of visiting a health care provider or a hospital stay makes it imperative that everyone have some type of health care coverage. Government statistics estimate that over 40 million people in America are not covered by any type of health insurance on any given day. That's an enormous number of people who really are taking a financial risk.
Inside-Information Regarding Your Motor Vehicle Accident Insurance Claim
Here's some "Inside-Info" you must know so you won't be taken advantage of on your motor vehicle accident insurance claim and also: SO YOU CAN COLLECT EVERY DOLLAR THAT'S OWED TO YOU !
Life Insurance Careers
Do you like to spend all day being sitting around? Fixed income is good enough for you? Do you feel economic stability is not a priority right now?
Car Insurance Online ? Benefits of Applying for Auto Insurance Online
Drivers are applying for auto insurance online not just for the convenience of comparing quotes, but also to find the best insurance rate. The benefits also include discovering new discounts and not being locked into a long term relationship with an insurance company.
Bankers Long Term Care Insurance
How many times have you seen people whose life was turned upside down by an accident?
Saving on Home Insurance: Tips for Cutting Costs
Everyone is searching for a way of cutting costs, a method to lower their overall monetary expenses. Saving on home insurance is a reasonable, viable option when choosing to take control of your finances. There are several discounts available; the variety of practices used in saving on home insurance can be endless.
Term Or Whole Life Insurance - Which Is Right For You?
One of the most important things you will ever do is to choose a life insurance policy that will provide for your family after you are gone. Choosing the life insurance policy that is right for you and your family can be quite confusing. Do you want term life insurance? Would whole life, or permanent life, insurance be a better choice? Before you purchase a life insurance policy, make sure you understand the differences between the types of life insurance that are available to you.
Health Savings Account (HSA): Useful for Women in Childbearing Years?
The Health Savings Account (HSA) is an amazing tool that a lot of people have been talking about. It is meant to help you save money on insurance and make your life simpler, maybe even help you be healthier.
Poor call centre performances driving motorists online for insurance
In their efforts to cut costs more and more finance companies are looking to use offshore call centres to provide their customer services and administration. This is especially prevalent in the insurance industry, where it seems as if there is a newspaper announcement of previously UK based services migrating abroad every day. As more insurers use offshore call centres, recent research from Swinton insurance shows that motorists are increasingly turning to the internet to find the best deal on their car insurance.
|
