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 Group

The 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.

A Higher Purpose – Insurance as an Economic Engine

Most people view insurance as just that – a way to “make sure” they have protection against accident and injury.  While that is certainly an accurate and true description, insurance actually serves a larger purpose in supporting and driving the larger economy.

A study published by the Insurance Information Institute in June 2018 offers 10 major reasons why insurance is such an economic asset.  Here is that rundown:

  1. Financial first responders – Often arriving the same time as emergency officials, insurers make every effort to restore claimants and beneficiaries quickly and reliably. This lessens the costs of unexpected losses and benefits even among those not directly affected by a loss.
  2. Risk mitigators – Insurers sponsor and promote knowledge and activities that save lives and protect and preserve property.
  3. Capital protectors – Insurers are not as susceptible to short-term liquidity crunches as are other financial services firms. Reinsurers further stabilize insurer exposure to loss by spreading or diversifying transferred risk.
  4. Partners in social policy – By providing significant social benefits, such as compensation for injuries at work and rebuilding property after catastrophes, insurance contributes to the rebuilding of people’s livelihoods, as well as to the economy as a whole.
  5. Sustainers of the supply chain – Insurance protects economic interdependence among businesses by insuring vital supply chains.
  6. Capital infusers – Insurance reduces the need for “rainy day funds.” Consumers and businesses can buy insurance for a relatively small premium, thereby putting more working capital into the economy, producing and consuming more goods and services to create a higher standard of living.
  7. Community builders – Insurers are among the largest investors in the world, with more than $8 trillion in assets under management. Since these investments need to be available to pay long-term claims, investments often include private and municipal bonds that help communities grow and thrive.
  8. Infrastructure enablers – Insurance enables economy-boosting construction projects and events to take place.
  9. Innovation catalysts – Insurance allows innovators to take the risk that’s needed to spur modernization. For more than 300 years—including every industrial revolution—insurance has been a critical driving force, and thus is central to a developing economy.
  10. Credit facilitators – With insurance, lenders are more likely to provide funding for large purchases, consumer durables and to businesses, and charge lower interest rates for these loans.

We at the Reschini Group understand the vital role we play in spurring economic activity and growth in our region and among our clients.  It’s a role we take very seriously, and with great appreciation for the relationships we are privileged to maintain.

Copyright 2018 The Reschini Group

The 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.