The traditional insurance market is showing cracks. Capacity is contracting for certain exposures and novel risks are leaving organizations without viable coverage options.
At the Risk Leadership Roundtable event hosted by LineSlip Solutions, senior risk managers gathered to discuss a question that's becoming increasingly urgent: when the insurance market can't (or won't) provide coverage, what alternatives actually work?
The Market Reality
Consider these statistics: approximately 90% of Fortune 500 companies now operate captive insurance programs. U.S. MGA premiums reached $114 billion in 2024, up 16% year-over-year. Fronting carriers grew 26% to $18 billion. Marsh-managed captives represent $77 billion in premium volume.
These aren't just numbers; they represent a fundamental shift in how sophisticated organizations approach risk management solutions. Traditional insurance is increasingly just one tool in a broader arsenal.
Alternative Approaches: What's Working
Roundtable participants discussed several alternative structures they've implemented or considered:
Structured Risk Programs:
These multi-year arrangements allow organizations to pre-fund expected losses with retrospective adjustments. One participant described success with a 3-year program that smoothed volatility and reduced cost compared to annual renewals.
The key: predictable loss patterns. If you can model one event every 3-5 years, structured programs work well. For truly unknown risks, they're difficult to price.
Strategic Captive Use:
Beyond just retaining risk, sophisticated organizations use captives to:
Domicile Arbitrage:
Vermont was once the default captive domicile, but participants noted advantages of Tennessee, Utah, and Hawaii for premium tax benefits and regulatory flexibility. Some organizations now operate multiple captives in different domiciles for different purposes.
Parametric Solutions:
These showed promise but significant limitations. One REIT explored parametric earthquake coverage to fund deductibles but discovered tax complications: a triggered payout without actual loss creates "bad income" that could jeopardize REIT status.
Industry-Specific Challenges
The commercial insurance needs vary dramatically by sector:
Entertainment/Venues:
Capacity for mass gathering events has contracted. Solutions include large deductibles and exploring captive options.
Transportation:
Nuclear verdicts are fragmenting casualty towers. Carriers that used to provide $25 million lines now offer $10 million or less, requiring 20+ carriers for adequate programs.
Real Estate:
Natural disaster deductibles of 5% of total insured value can aggregate to tens of millions across portfolios before insurance pays anything.
Pharmaceuticals:
Manufacturing dependency on legacy OT systems creates vulnerabilities that blend cyber, property, and business interruption exposures.
Looking Forward
Two questions emerged as critical for the next 5-10 years:
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Will there be a federal backstop for emerging risks? TRIA (Terrorism Risk Insurance Act) provides comfort to carriers even though it's rarely triggered. Could emerging risks follow a similar model? Participants were skeptical but acknowledged it could unlock capacity.
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How do we handle truly unknown risks? AI liability, social inflation, climate change—these evolve faster than underwriting models can adapt. Traditional insurance may not be the answer.
Practical Takeaways
For risk managers navigating capacity constraints:
The insurance market will always have cycles, but the trend toward alternative risk transfer isn't temporary—it's structural. Organizations with sophisticated risk management solutions and the data to support them will navigate these challenges far better than those treating insurance as a commodity purchase.
The question isn't whether your organization needs alternatives to traditional insurance. It's whether you're building the capabilities and relationships to access them when you need them most.
If your program data is scattered across spreadsheets, PDFs and portals, making confident, informed risk retention vs transfer decisions is more than challenging, it’s nearly impossible. LineSlip Risk Intelligence is purpose-built to empower risk managers to optimize their risk program. Set up some time today to see if it’s a good fit for your program.
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Frequently Asked Questions
1. What is alternative risk transfer and why is it becoming more important?
Alternative risk transfer refers to risk financing strategies beyond traditional insurance, including captive insurance programs, structured risk programs, parametric solutions, and fronting arrangements. These approaches are critical as traditional insurance capacity contracts for certain exposures and novel risks emerge without viable coverage options. Approximately 90% of Fortune 500 companies now operate captive insurance programs, while U.S. MGA premiums reached $114 billion in 2024, up 16% year-over-year. This represents a fundamental shift in how sophisticated organizations approach risk management. Traditional insurance is increasingly just one tool in a broader arsenal rather than the default solution.
2. How can captive insurance be used strategically beyond just retaining risk?
Sophisticated organizations use captives to generate revenue, access capacity in hard markets, and provide coverage for risks the traditional market won't touch. Captives also serve as negotiation tools since risk managers can credibly tell carriers "if your rate isn't competitive, we'll move this to our captive" when they have functioning captives ready to write coverage. Strategic captive use goes beyond simple risk retention to become an active part of enterprise risk financing strategy, particularly valuable during hard market cycles when traditional capacity becomes scarce or prohibitively expensive.
3. What are the advantages of different captive domiciles?
While Vermont was once the default captive domicile, other locations offer distinct advantages. Tennessee, Utah, and Hawaii provide significant premium tax benefits and greater regulatory flexibility compared to traditional domiciles. These benefits can result in meaningful cost savings over time, particularly for larger captive programs. Some organizations now operate multiple captives in different domiciles for different purposes, strategically leveraging domicile-specific advantages for their various risk financing needs. The choice of domicile should be based on your specific program requirements, tax considerations, and regulatory preferences rather than defaulting to historical norms.
4. What are structured risk programs and when do they work best?
Structured risk programs are multi-year arrangements that allow organizations to pre-fund expected losses with retrospective adjustments. They work best for risks with predictable loss patterns. For example, if you can model one event every 3-5 years, structured programs effectively smooth volatility and reduce costs compared to annual renewals. However, they're difficult to price for truly unknown risks where loss patterns can't be reliably predicted. The key is having sufficient historical data to model expected losses with confidence.
5. What challenges do different industries face in accessing traditional insurance capacity?
Capacity challenges vary significantly by sector. Entertainment and venue operators face contracted capacity for mass gathering events, requiring large deductibles and captive solutions. Transportation companies deal with nuclear verdicts fragmenting casualty towers; carriers that once provided $25 million lines now offer $10 million or less, requiring 20+ carriers for adequate programs. Real estate portfolios face natural disaster deductibles of 5% of total insured value that can aggregate to tens of millions. Pharmaceutical manufacturers confront vulnerabilities from legacy OT systems that blend cyber, property, and business interruption exposures that traditional markets struggle to underwrite effectively.