Why more companies aren’t using alternative risk transfer solutions

A lack of understanding about alternative risk transfer (ART) solutions, particularly among C-suite executives, remains a major obstacle to their expanded use, according a new report from Marsh and RIMS.

Nearly half of C-suite respondents said they don’t understand how the products work, compared to just 18% of risk professionals, said the 16^th Annual Excellence in Risk Management report, Strategic Risk Finance in the Era of Big Data. The survey polled 600 risk professionals on ART solutions such as catastrophe bonds, parametric insurance and captives.

For C-suite respondents, a lack of understanding about how the products work was cited as the top barrier to use, followed by cost and the belief that the organization was too small to make use of ART products. For risk professionals, explaining the benefits of ART solutions to others in the organization and cost were tied for the Number 1 obstacle, followed by the lack of data/analytics to make or justify choices.

In total, 33% of risk professional respondents and 53% of C-suite respondents said they need to learn more about alternative solutions before making a decision whether to use one. Cost and explaining the benefits to others in the organization were cited as the two main obstacles to using alternative solutions by 31% and 30% of respondents, respectively.

“In looking at obstacles to the use of ART solutions, we again found an opening for risk professionals to educate others in their organization,” said the report, released Monday. “Some focus group participants said they need more information to both understand and explain ART solutions.”

Having that information would help others within the organization to ‘get more comfortable’ with the concept, said one respondent. “For brokers and other risk advisors, this is an opportunity to not only educate risk executives about ART solutions and their benefits, but also to highlight the value of data and modelling tools,” noted the report.

According to Guy Carpenter, global alternative capital stood at US$95 billion at the end of 2018.