Alternative Risk Transfer in Autonomy

The pathway to autonomous deployment is not clear. We don’t yet know which solutions will become profitable, when, and under which circumstances. While the traditional insurance marketplace has to date kept up with the growth in first party testing and limited public pilots, there is little assurance that it will be ready to underwrite and cover AV risks when true commercialization occurs.

Enter Alternative Risk Transfer options.

Captives (Single Parent, Group, or Cell) and Risk Retention Groups offer customizable coverage, risk-specific and data-driven underwriting, tax benefits, and profit participation.

A Single Parent Captive Insurance company is a subsidiary of the parent created to take on facets of risk that are not suited (by cost, market capacity, or coverage) to the traditional insurance marketplace.

A Group Captive Insurance company is created to address the risk of multiple businesses that want to share some portion of their risk, while controlling overhead costs and participating in underwriting profits.

A Cell Captive (or Rent-a-Captive) addresses the risk of only a single business. But the cell is owned by a third party. This cuts down on some of the start-up costs associated with a Single Parent (collateral, filings, etc.). But the business maintains less control and benefits from this arrangement in many areas.

A Risk Retention Group is a federally chartered insurance company that is not required to file rates or forms in each state it operates in. This provides some flexibility (like a Surplus Lines Insurer). However, Risk Retention Groups are only chartered to write liability lines of coverage, whereas a Captive is not restricted in this way. They are also unrated, which can cause issues contractually or with statutory overages.

Benefits

• Expense Control. Underwriting, claims, loss control, and service costs can often be managed by a Captive to a greater degree of transparency and efficiency than in the general marketplace.

• Flexibility in coverage and structure. The traditional insurance marketplace is hampered by filed and approved programs and structure. A Captive arrangement allows for increased retention of risk, direct partnership with reinsurers, and creative financial arrangements, including the ability to address risks unique to a particular industry or business.

• Tax Deductions. When properly structured the parent company can deduct insurance premiums, while the captive can deduct claims costs.

Requirements

• Capitalization & Collateral

• Ability to sustain large risk

• Clarity on compliance and contractual requirements around admitted risk, allowances, etc.

Process

• Feasibility study. Expect to spend $30k-$40k and spend six weeks to complete. The review will include actuarial analysis, discussions on business planning, ideal risk tolerance, and identification of areas best suited to Alternative Risk Transfer options.

• Captive Analysis & underwriting. Specific risks evaluated, underwritten, and priced.

• Structure. Determination of appropriate program structure. Fronting paper where admitted coverage is required. Reinsurance partnerships to share in catastrophic risk exposures.

Many carriers offer large SIR (self insured retention) programs, or Retained Limit excess forms to allow more skin in the game of traditional coverage. This is a viable stepping stone from fully insured programs to Alternative Risk Transfers.

At IOA we’re not just thinking about how to insure autonomy today. We’re focused on long-term scalability and success.

Contact us below with any questions.