ACE European Group Predicts More Alternative Risk Financing Over Next Five Years

August 10, 2004

Research amongst European and U.S. Risk Managers concludes that within the next five years over half will be using alternative risk financing as a key part of their risk programs, according to ACE European Group.

“This apparent trend has emerged after ACE European Group compared research conducted by ACE USA amongst Risk Managers in Fortune 500 companies, with the results of a survey of Risk Managers in Spain, France, Germany, Italy, the Netherlands and Belgium, supported by the insurer,” said the bulletin.

ACE found that 55 percent of U.S. risk managers indicated they expected to increase their use of alternatives in the coming year. In Europe 50 percent of the risk managers queried said “they would be – or expected to use – alternative risk financing tools”.

The bulletin noted that “the European research, conducted by Insurance Research & Strategy, part of the FWD Group, surveyed the attitudes of Risk Managers for 502 companies, split evenly between mid and large size corporate businesses. When asked whether they saw a trend towards spending on risk management rather than paying premiums, 60 percent said they did, with the vast majority (84 percent) also indicating that Risk Management was at the heart of their business.”

ACE concluded: “the comparison demonstrates strong similarities between the Europeans and their American counterparts, reinforced by the type of alternative considered, or currently being used. When the range of alternatives used, or most likely to be used, was considered, both groups shared further common ground. Of European businesses questioned, 30 percent already have captives, with 43 percent of US Risk Managers stating captives would be used or expanded.”

The survey also found that, despite the favorability of alternative risk financing solutions, “European Risk Managers have not turned their back on traditional insurance provision. A large percentage still place business in their local and international markets, with Spain and Italy viewing insurance as their main risk financing tool.

“However, the research also identified challenges for European insurers. Close to 50 percent of the Risk Managers surveyed indicated that their local market did not adequately meet their requirements with premium costs and a lack of capacity cited as the main issues.”

Commenting on the findings, Michael Furgueson, President and COO of ACE Europe stated: “The use of increasingly sophisticated risk management techniques by the European and US Risk Management communities has to be welcomed. However, the results of the research also highlight a challenge for insurers, namely how to deliver the alternative risk management and risk transfer capabilities required by Risk Managers. Failing to meet the changing needs of today’s businesses could lead to some insurers facing a potentially diminished role.”

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