RIMS Australasia 2020 Virtual Summit: DAY TWO: 3. An introduction to alternate risk transfer: techniques & solutions

As the insurance market hardens around the world, more and more risk managers are looking to Alternative Risk Transfer to provide the cover they need – at the right price.

It’s getting harder and harder to get good value from traditional insurance.

Global prices soared by an average of 14 % in the first quarter of 2020, which was the tenth successive rise in a row and represents an upwards trend that is likely to continue.

In addition, many firms are looking for more innovative ways of managing complex risks that may not be available from traditional insurance products.

As a result many companies are now considering alternative options, Richard Green

Regional Head of Alternative Risk Transfer, Allianz Global Corporate & Specialty, Asia Pacific, told an online audience at the RIMS Australasia 2020 Virtual Summit.

“Companies tend to turn to Alternative Risk Transfer ( ART) when it offers something specific that they need, when they need it,” he said.

“For example, the minute the market hardens the kind of multi-year deals ART offers suddenly become more interesting.”

The principal options available when it comes to ART are Capital Solutions, Climate Solutions, Corporate Solutions and Re insurance Solutions, according to Green. 

“One that has been getting a lot of attention is Capital Solutions, which covers traditional risks – such as nat cat – but the capacity comes from the Alternative Capital Markets, such as investment banks, pension funds, hedge funds and even high net worth individuals,” says Green.

The Capital Solutions market grew from $385 billion-$585 billion between 2006-2018 and now provides between 15-20% of all re insurance capital.

Capital Solutions are particularly useful for firms who are looking for parametric cover rather than traditional indemnity.

“Just look at Covid-19,” says Green. “There has been no physical damage but the financial losses have been massive.”

Another niche served by ART is around Climate Solutions, particularly renewable energy.

“We have been able to provide cover that insures against a lack of sun, lack of wind or a failure to get the right price,” says Green.

In 2018 Allianz completed the first wind farm proxy revenue swap in Australia, in partnership with Nephila Capital, hedging price and volume risks including weather risks for a new windfarm project in Victoria.

Although ART is still dwarfed by the traditional insurance market, its ability to offer bespoke solutions – as well as a convenient half-way house between off-the-peg cover and self insurance – have helped the sector grow rapidly, while providing risk managers with cost effective solutions to the challenges they face.