Alternative Risk Transfer (ART) solutions are thriving locally as they continue to allow the construction industry easier and cheaper access to the insurance sector. Recent statistics released by Performance and Customs Bond Services (PCBS), a specialist construction Underwriting Management Agency, indicate steady growth of this line of its business over the past 9 years.

 

“Our ART business book has grown from 9% in 2008 to 30% in 2013. It is definitely an option that works well within the construction industry, largely owing to the growing number of contractors realising the tremendous opportunities to economically capitalise on new methods of managing their risks,” says Lee-Anne McKechnie,ART/Technical Accounts Executive at PCBS.

 

McKechnie says that ART products ultimately bring free choice to the insured party. “ART allows individual contractors to choose the most suitable cover that best matches their risk profile, giving them freedom to finance that risk utilising non-conventional, flexible and more profitable self-insurance style structures. Rates assigned and premiums paid by contractors are a direct reflection of that contractor’s business,” she comments.

 

Through sharing in the risk, McKechnie explains that in addition to having an opportunity to earn investment income and reducing overall insurance costs, ART allows contractors to accrue reserves for additional capacity that might be required for new projects obtained during the period of facility granted. “The construction industry is fiercely competitive in nature, and opting for a risk management solution that also improves liquidity provides an invaluable advantage,” she adds.

 

McKechnie says other distinct advantages that are seeing an increasing number of contractors opting for its ART product are the opportunity to earn investment income and the fact that all premiums paid are tax deductable. “Each guarantee we issue has a contingency policy attached. The contingency premium paid into the policy is considered an insurance expense and is therefore deductible for company tax purposes.”

 

However, McKechnie explains that contractors should not consider ART as a single product but rather a way of doing business. “The reason we us use the term ‘solutions’ rather than products is because ART includes alternative carriers (such as captives and risk-retention groups and pools) and alternative products (such as finite risk reinsurance, runoff solutions, committed or contingent capital, multi-line and multi-year products). These are available to companies and insurance and reinsurance companies.

 

Ultimately for contractors undertaking the risk of construction, the work is both complex and subject to an ever-changing environment. “How you choose to manage your risks directly impacts your bottom line. Partnering with the right risk management professionals that understand the special challenges of construction, and selecting the right tailor-made solutions for each unique project, company or circumstances is a critical factor in determining profitability,” concludes McKechnie.