Alternative risk financing involves the use of vehicles other than conventional commercial insurance to cover liability. Today almost all large businesses, as well as smaller ones that happen to have larger liability costs use some kind of alternative risk financing–even if it is achieved simply by using a large deductible or self-retention as a form of self-insurance. Other common but more complicated alternatives include special insurance programs through commercial insurers and captive insurance including using so-called rent-a-captives and risk retention groups.

Through its origins in healthcare, litigation and insurance coverage, the firm’s capabilities in alternative risk financing paralleled its clients’ increasing need for alternative risk financing. This need for alternatives to the commercial insurance industry was borne in the 1970s with the first of four national malpractice insurance crises. Many insurers stopped writing professional liability insurance for health providers, and the rates of those who did not stop went up dramatically. As one hospital’s general counsel told the firm in 1976: “When a hospital has to pay its insurer $1.2 million for $1 million in aggregate coverage, you know you are self-insured.”

Our involvement in this area includes extensive work in self-insurance plans which are very practical for non-profits, working up unique insurance arrangements with conventional insurers (e.g., special physician plans) and development of captive insurers, which are privately-owned limited risk insurers often domiciled offshore (e.g., the Cayman Islands). We regularly assist clients–typically as part of a team with insurance brokers and actuaries–in understanding the advantages, disadvantages and practicalities of various alternatives. In addition, our attorneys have spoken regionally and nationally on the subject.

We provide guidance on joint defense, which is one of the major advantages of joint hospital and physician insurance programs, but also one of its most complex aspects. This work has included informational guidelines and statements, dispute resolution mechanisms and fair national practitioner data bank reporting processes. For these alternative risk programs we also prepare insurance policies and endorsements, fronting insurer agreements (where a licensed commercial insurer agrees to back up an insurer not licensed in the local state), agreements among insurers and those insured, self insurance plans and trusts, corporate coverage and underwriting policies, and guidance on claims handling and joint defense.

Alternative Risk Financing

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