What is the Alternative Market?
The Alternative Market or Alternative Risk Transfers (ARTs) is a term used to encompass various types of insurance programs typically retaining some portion of the risk versus transferring all of the risk like in a “traditional” insurance policy. The Alternative Market can be broken down into various types of programs.
1. Self-insurance
2. Risk Retention and Risk Purchasing Groups (RRGs)
3. Captives
4. Rent-A-Captives
5. Sponsored Captives
6. Insurance pools
7. Association Groups
Each type of Alternative Risk Transfer Mechanism has its own purpose and function. However the driving force of all ART programs is to recoup or retain the underwriting profit. Companies who have invested in loss control and have tight control on their claims often experience lower losses. In the traditional (workersxzcompxzkit) market, the insurance carrier collects a premium and uses it to pay the losses of the good and the bad companies.
Companies that participate in ART programs especially captives where they own their own insurance company, realize more control by paying only the claims they incur and not the losses of the bad companies. In addition the profits on invested surplus (underwriting profit) go to the group’s members or captive owner rather than an insurance company.
Author: DeAnna E. Slater, CIC, AFSB is an Area Vice President with Arthur J. Gallagher Risk Management Services, Inc. in West Fresno, CA. She is a specialist in the alternative market as it relates to reducing workers’ compensation costs. Contact her at deanna_slater@ajg.com or visit her at http://www.captiveexpert.blogspot.com/
Click on these links to try it for yourself.
WC Calculator www.ReduceYourWorkersComp.com/calculator.php
TD Calculator www.ReduceYourWorkersComp.com/transitional-duty-cost-calculator.php
WC 101 www.ReduceYourWorkersComp.com/workers_comp.php
Do not use this information without independent verification. All state laws are different. Consult with your corporate legal counsel before implementing any cost containment programs.
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