Businesses are vulnerable to having their existence threatened by a multitude of problems. In many instances, a company buys insurance to handle different aspects of their operations such as General Liability, Business Auto, Workers Compensation, Commercial Property, Professional Liability, Commercial Umbrella and other coverages. However, insurance is not always the most appropriate method for managing a particular source of loss. Insurance is just one form of risk management and companies increasingly use alternatives.
Alternative Risk Techniques (ART) is a reference to methods of handling loss exposures that do not involve traditional insurance products. The reasons for seeking other solutions for handling threats of loss are varied. In some instances, the type of loss is not covered by the traditional insurance marketplace; extreme examples include war or nuclear risks. Sometimes, while insurance may be available, it may not be affordable, such as professional liability risks for occupations very vulnerable to litigation. Another instance involves minor losses that cause problems because they occur frequently. They have to be addressed, but are impractical to insure. Common types of ART include:
- Captive Insurance Companies
- Risk Retention Groups
- Financing Techniques
- Direct use of Reinsurance Companies
- Use of Options (futures)
ART is typically used by larger businesses that increasingly view risk management as an integral part of their operations. ART offers greater control of operation costs from two angles, exercising decisions about the best way to avoid/minimize possible losses and addressing the level of resources devoted to managing sources that could affect an organization's income and assets. Alternative methods also offer other advantages such as enhancing the level of risk management service, securing a customized program that addresses particular coverage needs, and reaping financial savings more quickly when an effective program is implemented and followed. Another incentive for ART is that companies can gain greater control over their balance sheets and financial statements.
Although Alternative Risk Techniques do not involve traditional insurance, many insurance professionals are an excellent source for providing service in this area, since both insurance and ART are tools to help manage risks faced by all organizations.
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