Risk managers have one primary goal: managing today’s toughest risks by utilizing the best insurance options available. Traditional policies such as general liability, property, workers’ compensation give risk managers the basis for coverage and provide peace of mind should a loss or claim arise.

But risks change.

The savvy risk manager knows that an effective coverage plan also requires flexibility and adaptability. That’s why many look to alternative risk solutions to bolster their risk management strategies.

“Alternative risk solutions can help risk managers strike the balance between control and adaptability in their risk management solutions,” said Robert Curtis, ARS Practice Leader, Global Risk Solutions, Liberty Mutual Insurance.

Alternative risk solutions, or ARS, offer an extra layer of control and range in terms of coverage and protection that go beyond traditional insurance to help businesses more effectively manage and transfer risk.

Many of the ARS in play today, including parametric, captive, and other program types, were created in direct response to client feedback, meaning they have been created with clients’ specific risks and needs in mind.

For those looking at ARS as a risk a management tool, it’s important to understand the benefits they provide for businesses, the importance of engaging with insurance partners, and how organizations can initiate ARS strategies to deliver enterprise value and build corporate resilience.

Understanding the Role of ARS in Risk Management

Robert Curtis, ARS Practice Leader, Global Risk Solutions, Liberty Mutual Insurance

ARS offer a level of flexibility for businesses. That’s because they are designed to adapt to the individual client’s needs, offering innovative and custom-built options to enhance risk management strategies.

These types of solutions also give businesses an opportunity to allocate funds where they are most needed. Every business operates on a budget; having the ability to really look at where money is going and make sure it’s being utilized where it’s needed most is paramount.

“As risk managers aim to control and mitigate risks effectively, ARS can help introduce flexibility into risk management strategies, enabling companies to adapt—and even thrive and hold a competitive advantage,” Curtis said.

Should My Organization Consider ARS?

Larger, more complex organizations truly benefit from ARS due to their intricate risk profiles that require sophisticated solutions. Incorporating ARS into the mix enables a more granular view on managing those risks.

“International operations are prime candidates, as well, due to the variety of risks they face across different jurisdictions and markets. That kind of risk profile necessitates flexible risk solutions and that out-of-the-box thinking that comes with alternative risk solutions,” said Curtis.

He also noted that those looking into ARS are often businesses that possess a degree of risk management sophistication. These operations already utilize traditional risk strategies but turn to ARS to become more innovative in their approach.

The important question risk managers should be asking, then, is which ARS is the right fit for the risk?

Four Types of ARS

When it comes to ARS, it’s not “one size fits all.” There are different program types to consider.

1) Structured Solutions.

A flexible, customizable and strategic risk transfer option, structured solutions are designed to focus on a single product line over multi-year agreements.

“These solutions are often very bespoke, meaning they will be tailor-made for the specific organization looking into the structured solution,” Curtis explained.

This type of solution is structured so that it can meet the client’s capital needs and adjust to the “peaks and valleys,” as Curtis put it, of operating a business.

The main goal is to help manage volatility in the market while creating capital efficiency.

2) Parametric Insurance.

Parametric solutions are becoming more popular thanks to the inherent transparency built into its ARS model. This type of coverage activates based on predefined parameters, such as weather-related perils or cyber events, ensuring faster payouts in the event of a claim.

Not only are the activation criteria clearly outlined, but the data used to measure and determine payout amounts is also specified upfront. This level of clarity and efficiency makes parametric solutions an appealing option for policyholders seeking prompt and reliable financial support.

“Parametric agreements have known triggers built into the coverage, so if the event were to occur, the insured already knows what to expect,” Curtis said.

Insurers have also been looking at parametric to expand into new markets and risk areas where non-physical damage risk are prevalent for clients. “As data collection continues to increase at an exponential rate, the ability to expand development and customization on parametric programs to reduce basis risk grows with each new program,” Curtis said.

3) Captives.

Captives are a solid ARS option for businesses looking to manage and insure their own risks.

Captives aren’t new to the industry, but they are experiencing an uptick in interest for some of today’s more pressing risks.

For example, Curtis noted more companies are looking at captives to manage their cyber exposers or their supply chain risk—two areas where they might be running into coverage obstacles in the traditional marketplace.

“Clients are asking, if they are using the captive to insure some of these more prominent risks, is there a different way to buy reinsurance,” he said. “Here’s where we’re seeing activity as more captive owners look to evolve their captives moving forward.”

4) Integrated Solutions.

As another ARS option, integrated solutions cover multiple lines of coverage with a shared limit.

Though they are not inexpensive, integrated solutions can ease the administrative burden and provide clarity of coverage, contributing to their growth in popularity among clients. They can also act like a comprehensive umbrella policy that encompasses multiple lines of coverage. This approach not only promotes efficient capacity by allowing shared limits across various lines, but also streamlines the renewal process, requiring only one renewal every three years instead of managing multiple, piecemeal policies.

“Instead of buying a separate tower for casualty and financial lines, clients will turn to integrated solutions to buy a shared limit. It turns into a more efficient way of buying capacity and having more stable capacity over time,” Curtis shared.

What’s the Right ARS Program to Choose?

It’s important that businesses choose the right ARS that fits their needs.

To do that, Curtis recommends that risk managers place three key strategies at the forefront of their decision making: being open-minded, enacting effective communication, and taking a collaborative approach to development.

“Risk managers should remain open to exploring ARS, looking at both the traditional and non-traditional options as part of their overall risk management strategy,” he said.

Communicating with stakeholders and having transparent conversations around ARS will give everyone a better understanding of the end goal. When engaging with C-suite executives and board members, it is essential for risk managers to articulate the potential benefits of adopting these solutions, including cost savings and capital management, improved risk control, and competitive advantages.

“Risk managers need to be able to communicate how these programs are going to work internally and the value they bring to the business,” noted Curtis.

Effective communication will lead to collaboration, because the groundwork will be laid in those early conversations around ARS benefits. Working together with the internal team and external insurance partners will result in the best outcome.

“By co-creating a solution with a client, we can ensure that the program effectively meets its risk management needs today and evolves as the organization and its needs change. These solutions are designed to be dynamic, so they continue to be relevant and impactful over time,” explained Curtis.

The Right Partner for the Job

Different ARS bring different solutions to the table. The right insurance partner will help its client achieve its ARS goals while addressing any risk management questions that arise along the way.

At Liberty Mutual, the alternative risk solutions team is always thinking about what their clients need. The insurer recognizes the risk environment is always changing, therefore, so is the role of the risk manager. The demand to find better solutions for long-standing resilience is paramount, and ARS can give clients a risk management boost.

“Our ARS team was established in direct response to client feedback that highlighted the need for customized solutions that reflect these dynamics. We listen to our clients and recognize that as the risk environment becomes more volatile, our clients need different options to take on tomorrow with confidence,” said Curtis.

Because of the insurer’s vast reach, Curtis and his team can work deals anywhere around the globe. They also come with extensive knowledge of international risks that need to be addressed, making the ARS underwriting process run smoothly.

“When I’m developing a program, I make a point to reach out to our local underwriters. They are involved. They know what that specific area’s risks are and what will help the client. It’s a truly collaborative partnership with Liberty,” he said.

And that collaboration benefits clients who are looking to hone in on their risks and find customized solutions through ARS offerings. “If a client comes to us with a problem they’re trying to solve, or a risk they’re trying to place, we can co-create a customized program that works best for them,” said Curtis, “with diverse perspectives, expertise, and forward-looking, creative coverage strategies.”

To learn more, visit: https://business.libertymutual.com/corporate-resilience/

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.