Alternative Risk Transfer (ART) – Why It’s SmART and Looking SmARTer in 2021 and Beyond

Alternative Risk Transfer (ART) describes the marketplace in which nontraditional risk transfer approaches (as compared to commercial insurance) can be arranged. Some of the types of entities and approaches included in this marketplace are captive insurance companies (Captives), pools, trusts and risk retention groups (RRGs).

ART typically includes some form of self-insurance (formal or informal, complete, partial or shared) and enables entities to:

Retain all or a portion of their risk.
Retain all or a portion of insurance profits.
More closely align their risk management program with the risks of the insured(s)
Tie their insurance costs more closely to their own loss experience.
Stop subsidizing the poor performance of unrelated risky businesses with their hard-earned premium dollars.
2020 overwhelmingly demonstrated the importance of ART approaches as commercial insurance rarely covered business interruption caused by COVID-19 and civil unrest. Hardening commercial insurance markets are also pushing middle-market companies to consider ART solutions.

AM Best indicates that Alternative Risk Transfer market is the largest premium segment of the insurance industry (over 56% of every insurance dollar is placed in an ART market). As can be seen, more and more of the smART money has moved into the ART market. Also, Forbes indicates that over 90% of Fortune 500 companies utilize Alternative Risk Transfer through the use of captive insurance programs.