To manage some of the key challenges to long-term resilience and growth effectively, you may need alternative forms of risk transfer. These may address a specific risk of concern which is not adequately or effectively covered by traditional insurance, may create financial efficiencies through alternative structuring, or provide access to alternative forms of capital to improve cost or access additional capacity.
Why ART solutions?
Businesses operate in an increasingly uncertain environment. Multiple factors are driving this uncertainty: climate change, changing regulation, cyber threats, high inflation and interest rates, geopolitical risk and supply chain disruption. Many of these new risks are not adequately covered by traditional insurance, leaving businesses exposed to greater volatility. ART solutions can provide an alternative approach to managing and transferring risk allowing businesses to:
- Overcome insurance gaps when traditional insurance markets don’t have capacity
- Outsmart volatility in insurer premiums
- Secure clarity of coverage
- Avoid delays in claims payments when compared to traditional insurance
- Protect income statements, the balance sheet or both from the volatility and/or cost of risk
- Optimize using polices covering multiple risk lines and/or with multi-year terms
- Align your operational risk management strategy consistently with other financial hedges.
How do we identify the right structure for your ART solution?
Finding the most appropriate ART solution begins with understanding your precise needs.
Meeting your specific requirements will involve tailoring an ART solution to a specific risk or set of risks, applying different structural approaches to policy design, or accessing different sources of capital.
Perhaps you’re looking to cover non-damage business interruption or the wide area impact of catastrophic events, increase retentions without over-stretching your captive’s balance sheet, lock into long term risk transfer capacity, align your insurance buying to your risk tolerance or improve the speed at which claims are settled.
ART solutions can be deployed to tackle these challenges and many more.
Why WTW to support your ART journey?
At WTW, we pride ourselves on our innovative approach to creating tailored solutions to the challenges of today’s uncertainty.
We are a highly experienced, global team of alternative risk transfer specialists, with wide ranging expertise, which we deploy through multi-disciplinary teams to ensure that we bring scientific rigour, analytics, structuring and market expertise to each-and-every client engagement. We have teams located in London, New York, Paris, Hong Kong and Bogota, so can provide local service backed by the breadth and depth of the global team. Being part of a global broker, we also benefit from collaboration with colleagues with industry sector experience, insurance class expertise, developments in scientific research and the best actuarial and climate modelling available.
What are your alternative risk transfer options?
ART solutions are tailored to the unique needs of your organization. No two are the same. However, most fall under one of the following solution types:
Provide a swift injection of capital if a pre-agreed event occurs. Typically, the covered events are adverse weather or natural catastrophes, but there is flexibility to include other risks which can be objectively defined and measured. Physical damage to assets is not a pre-requisite for claims to be paid, meaning that parametric solutions can be deployed to cover non-damage business interruption, pure financial loss and extra expenses. We customize parametric solutions to your geography, risk exposure, risk objectives and budget.
Blend risk financing and risk transfer to create solutions that seek to manage the impact of low frequency, high severity losses on your income statements over multiple periods. Solutions are typically multi-year creating stability in cost, coverage and capacity. They are deployed when traditional premiums are high relative to the limit or where there is a need to evidence cover, but the insurer has more negative view of a risk than the insured.
A number of ART solutions can be deployed to de-risk a captive. These include multi-line and multi-year stop loss covers, structured reinsurance and loss portfolio transfers, all of which can improve a captive’s capital efficiency and stabilize underwriting results. We can also arrange fronting and reinsurance for non-traditional risks to allow your captive to participate in risks which would otherwise remain uninsured.
Also known as Integrated Risk Programs, are multi-line, multi-year risk transfer structures that access insurance market capacity efficiently and in line with your risk tolerance. Portfolio solutions provide greater certainty of limit, price, terms and conditions and reduce administration time and cost.
Are designed to manage specific credit or collateral issues or to arbitrage banks’ regulatory capital anomalies through using insurance.
Include a range of solutions including contingent capital, residual value insurance and insurance linked securities.
How are organizations using ART solutions?
Our ART team has designed and placed ART solutions for a wide range of client challenges across multiple industries and geographies. Here are just a few examples of solutions we have developed.
Forest fire parametric solution for a forestry company, Latin America
A global commercial forest owner explored alternative risk transfer after experiencing exceptional fire losses that significantly exceeded the limit of its insurance policy and, latterly, market capacity at renewal.
WTW worked to develop an innovative Burned Area Index alternative risk transfer solution which incorporated NASA satellite imagery data and an agreed, asset-based value per pixel on given images.
The solution provided the capacity the business needed at an efficient premium and provided for timely and efficient payouts, calculated independently using a pre-agreed formula.
Structured primary property solution for a real estate company, USA
This real estate company had suffered a series of large property losses. This loss history, coupled with the hardening property insurance market resulted in a 50% increase in premiums at renewal. WTW placed a multi-year structured solution that secured risk transfer coverage at a fixed premium for a multi-year term. WTW embedded features in the cover that rewarded the organization for good loss experience. By implementing this structure, we dramatically reduced the anticipated renewal premium given the profit share feature, created certainty of coverage and cost, while hedging against a deteriorating property market. This approach is being regularly used in the primary layers of property, cyber and professional liability, and also for auto risks as a buffer between the primary and excess layers.
Parametric solution for natural catastrophe risk in construction, Australia
An infrastructure construction project was exposed to project delays and additional costs resulting from tropical cyclones and/or excess rainfall which required the evacuation of workers for safety reasons. While the project financers required protection for this risk, traditional insurance would not respond if there were no associated asset damage from the event.
WTW structured and executed a parametric solution which responded in the event of objectively defined cyclone or rainfall events occurring within a defined zone.
This multi-year structure, executive as a derivative, satisfied the project financers’ requirements, helped the project secure more competitive financing terms and paid a claim which was settled within two weeks of the trigger event.
Parametric solution for a leisure attraction, UK
This U.K. attraction experienced high visitor volumes on rainy days but lost visitors to other activities when the weather was fine. The business sought protection against the impact on revenues of a prolonged rain-free summer.
WTW designed and placed a highly tailored ART solution to meet the specific needs of the business, and when the pre-defined trigger event occurred, the policy paid out within two weeks.
Innovative solution for NGO
WTW team executed a landmark structure that provided an NGO with a parametric solution that would provide funds in the event of a triggering tropical cyclone. These funds could then be quickly deployed in the immediate aftermath of cyclone events to support rapid response and early recovery.
The solution spanned four global regions and some 15 countries at high risk from climate-related disasters.
To discover how ART solutions could provide you with smarter ways to bridge insurance and capital gaps, get in touch.