Sharing the Load: Utilizing Alternative Risk Financing
You’re sitting comfortably in your theater seat as the lights go down and the feature begins. Flickering up on the big screen you see the name of the Hollywood studio that made the movie. Then another studio’s logo appears, and another, and sometimes a fourth.
Why did it require so many studios to produce one motion picture, you start to wonder?
The fact is, it didn’t. But it helped to spread the financial risk by having multiple studios involved. If the film failed, the losses can be shared. Positive returns can be split, as well. But the prudent business always tries to minimize its risk.
The insurance industry is built on the idea of managing risk. Business clients purchase traditional policies to protect in case of damage or loss. Premiums are priced based on information and projections concerning the likelihood of those events occurring.But what happens when the business client carries a higher level of risk, due to size, scope, multiple locations, or other factors?That is when alternative risk financing – a different option to the standard insurance program – can become attractive. Through alternative risk financing, very large companies with very large deductibles put up collateral against risk and associated losses, to spread that risk out. By reducing the risk covered by the standard insurance policy, these large companies in effect begin to manage a portion of their own risk.This is a growing segment that is becoming more and more attractive to large clients. Alternative risk financing programs may generate less in commission for the traditional insurer, but clients remain connected to their insurance providers because not all risk is shifted to the alternative option. Alternative risk financing – and the shifting of some risk internally – keeps large clients adequately insured while potentially reducing their premium costs.The professionals at The Reschini Group can help your organization understand alternative risk financing and whether it could become a viable option for your organization. Contact us to talk more about this important consideration or read more about Alternative Financing options and download our risk resource.
Copyright 2019 The Reschini GroupThe Reschini Group provides these updates for information only, and does not provide legal advice. To make decisions regarding insurance matters, please consult directly with a licensed insurance professional or firm.