Alternative Risk Financing
What Does Alternative Risk Financing Mean?
Alternative risk financing is a form of self-insurance in which a company sets aside funds to cover potential risks. This approach emerged when certain company risks could not be financed through traditional insurance providers. Alternative risk financing units are primarily located outside the United States.
Insuranceopedia Explains Alternative Risk Financing
Alternative risk financing occurs when a company establishes its own insurance assets to cover potential future losses. These assets may include, but are not limited to, workers’ compensation and other liabilities.
The location where alternative risk financing is based is referred to as the domicile. The legal structure of these setups varies from one domicile to another, with Bermuda being home to the most domiciles.
Alternative risk financing can be arranged by a single company or a group of companies. Since the risks are financed internally (within the company or group) rather than externally (through an insurance provider), it can be said that the insurer is also the policyholder.
