How it is changing the alternative way of financing risk

Carl Bloomfield (pictured), president and chief executive officer of The Graham Company, a Marsh McLennan Agency Company, has seen first-hand the changes in the nature of alternative risk financing over the years.

“Captive insurance companies, while not a new concept by any means, are becoming more and more accepted,” he explained.

Bloomfield emphasizes the role of split cells and leased type captives in this change – these structures, with low capital costs, made it easier for insurers to spend more money.

“The rapid growth of detached cells and rental-type captives has been driven by their very low capital costs and easy access to the insured,” he added.

Bloomfield explained that traditional group captives typically limit coverage to workers' compensation, general liability and auto, but new structures such as separate cell Series LLCs and rental captives offer more flexibility.

“These other captive structures, the Cell Series LLC separated and leased captives, are easy to establish quickly, provide flexibility, and provide a creative solution to many of the risks that companies face,” he added.

Developing market conditions, such as tight markets and inflation, have driven this shift. Bloomfield pointed out that companies facing large year-over-year increases in property insurance have begun to look for alternatives.

“We are seeing property insurance premiums increase from 20% to 50% and in some extreme cases up to 100% to 300% every year,” he added. “As insurance companies and reinsurers force higher retention, it creates a great opportunity for insurers to take some of that retention, pre-fund it to capture it, and reap the rewards.”

Project specific insurance

One of the innovations discussed by Bloomfield was project-specific insurance, designed for specific risks. He shared an example of a University of Pennsylvania project, where a project-specific cyber liability policy was implemented. The building used a new approach called Integrated Project Delivery, or IPD, where all key components work together through the design, construction and construction process using the standard Building Information Modeling (BIM) technology.

“There was a lot of concern about what would happen if that technology was not found, hacked or used by a bad actor,” said Bloomfield. A network liability policy provides peace of mind by ensuring that building plans and technology can be restored if compromised.

Bloomfield also highlighted the Graham Company's PRIME Process, (P2RIME®), which stands for preparation, prevention, risk transfer, insurance, mitigation, and education. This process allows Graham to analyze and address weaknesses in the insurer's risk management strategy.

“At Graham, we use P2RIME® to go deeper into areas like ship safety and management,” he said. “At the end of the day, people still make bad decisions, and our job is to help clients reduce those risks.”

The evolving risk landscape requires new solutions and a focus on both uninsured and non-insured risks. Bloomfield said many of the top risks CEOs worry about are not covered by insurance.

“If you look at the top 10 risks that most CEOs are concerned about, only a handful of those risks are actually uninsured,” he added. This reality has shaped Graham's vision to help clients fully address their major risks, whether they are uninsured or not. A partnership with the Marsh McLennan Agency in August 2023 has greatly strengthened Graham's skills.

“We now have access to the largest risk management consultant in the world,” Bloomfield said.

Challenges ahead

And, looking ahead, Bloomfield sees several challenges, especially related to the labor market and mental health impacts post-COVID.

“The labor market will continue to be tough, and mental health is a big challenge,” he said. “We have to understand the person who comes to work every day, and provide the resources and support to ensure that they bring their full and healthy selves.”

Bloomfield also said the growing interest in parametric insurance, which provides pre-defined payouts based on certain risk factors, is particularly useful for large construction projects affected by weather.

“We are seeing an increase in interest in emergency insurance,” he concluded.