What is the alternative insurance market?
The property/casualty insurance market operates cyclically between soft markets when insurance is relatively available and affordable and hard markets when insurance capacity shrinks and prices increase, sometimes dramatically.
The “alternative market” of policyholder-owned insurance companies, like the Nonprofits Insurance Alliance Group, grew out of consumers’ frustration with the uncertainty in availability and affordability of insurance. Through these alternative market organizations, policyholders have learned that they can gain control of an important financial service and provide better insurance coverage at lower average rates. Industries, such as universities and colleges, hospitals and municipalities as well as nonprofits, have had success with alternative insurance. The success of the Nonprofits Insurance Alliance Group makes it evident that nonprofits have greatly benefited from embarking on this move to alternative insurance.
What is a charitable risk pool?
A charitable risk pool is comprised of nonprofit organizations that qualify under section 501(c)(3) of the Internal Revenue Code. Like self-insurance, risk retention groups, and captive insurance companies, charitable risk pools are part of the “alternative” insurance marketplace. A fast growing sector, it is estimated that more than fifty percent of total commercial property and casualty premiums are now part of this alternative market.
What is a risk retention group?
A risk retention group (RRG) is an liability insurance company that is owned by its members. Under the Liability Risk Retention Act, RRGs must be licensed by one state. The Alliance of Nonprofits for Insurance (ANI) is licensed by and domiciled in the state of Vermont. ANI chose Vermont as its state of domicile because it is known as the “gold standard” for regulating RRGs. Vermont is regarded as a thorough, but fair, regulator. Once licensed by its state of domicile, an RRG can insure members in all states in which it registers to do business. Similar to other insurance companies, RRGs typically retain a portion of the risk they underwrite and purchase reinsurance for large claims.
What is reinsurance?
Insurance works because of the law of large numbers and the ability of insurance companies worldwide to share in the risk of loss by ceding to others a portion of the risk they undertake from their policyholders. Nearly every insurance company purchases reinsurance to assure that unusually large claims are shared. Three highly rated reinsurers (Swiss Re, Hannover Re and Aspen Re) reinsure member companies of the Nonprofits Insurance Alliance Group.