Alternative Risk Financing Facilities

What Does Alternative Risk Financing Facilities Mean?

Alternative risk financing facilities are private entities that provide risk financing without being official insurance companies. These include captive insurers, risk retention groups, pools, and individual self-insurance. Such entities can offer risk financing for various purposes, including personal or business property, workers’ compensation, medical malpractice coverage, and other forms of financial protection. Groups of doctors and hospitals, for example, often use these facilities to fund professional liability insurance internally when the open market is too expensive or unwilling to write the risk.

Insuranceopedia Explains Alternative Risk Financing Facilities

Alternative risk financing facilities were originally established to address the unmet needs of certain groups and organizations within the insurance market. Many of the businesses that turn to these arrangements do so because they have looked at how much standard small business insurance costs and decided they can fund their own losses more efficiently as a group. Over time, these entities have evolved to cater to a wide range of risk financing requirements, including coverage also provided by traditional insurance companies. This is especially common with workers’ compensation insurance, where companies in similar industries pool their funds to pay claims without going through a conventional carrier.

A significant number of alternative risk financing facilities are headquartered in Bermuda.