All business organizations are faced with a variety of risks which can hamper their growth and development prospects. Hence, it is crucial for entrepreneurs to invest in adequate risk management solutions. As mentioned by Michael Saltzstein in addition to the traditional options, many modern, savvy entrepreneurs are looking forward to using various alternative risk financing methods for their business due to their high feasibility and affordability. Alternative risk financing implies to any other technique apart from traditional insurance and reinsurance that enables businesses to enjoy the needed risk coverage.
Alternative risk financing is usually provided by certain private insurers to both individuals and institutions. A variety of risk coverage options can be availed through these private entities, including property-casualty insurance, medical malpractice coverage, as well as directors and officers liability insurance. Michael Saltzstein mentions that alternative risk financing is especially popular for offering coverage options that are not readily available in the market. Mr. Saltzstein has been associated with the alternative risk financing industry for quite some time, and hence is well-aware of its intricacies.
Making use of alternative risk financing solutions requires a willingness to commit resources, as well as a good level of management discipline. These solutions would be good for businesses of all sizes, but is the most popular among small and medium scale firms. Michael Saltzstein says that alternative risk financing would especially be good for companies that have:
- Reasonable predictability
- Moderate volatility
- Minimal exposure to any catastrophic event
- High frequency and low severity risks
Alternative risk financing vehicles are available in multiple forms, and there are various types of plans related to them. Being a type of strategic enterprise risk management process, these vehicles can even blend traditional insurance and reinsurance with forms of self-funding.
Alternative risk financing options enable entrepreneurs to enjoy superior control of who shares their risk, while also gaining access to profits generated from current insurance premiums. These insurance options are also not subjected to market swings, enabling the entrepreneurs to avail stability and predictability in premiums. There are many factors that have resulted in the growing popularity of alternative risk financing options. Here are some of their beneficial features as underlined by Michael Saltzstein:
- It reduces the reliance of modern businesses on common commercial insurance solutions, and enables them to reclaim control over the sum of risk financing needed by them.
- Alternative risk financing reduces the costs involved in risk management by opting to lower the expenses of insurance acquisition. It also helps in stabilizing of premium pricing over a period of time.
- The system of alternative risk financing enables businesses to avail coverage for elements that are otherwise unavailable or can’t be afforded.
- Through a proper choice of a captive domicile, any government regulation and interference is considerably reduced in the case alternative risk management options.
With the help of alternative risk financing, companies get to enjoy access to reinsurance markets, while also availing customize insurance.