And it s having a positive effect on the balance sheet, as well as giving customers more options to protect their businesses. While such methods as loss portfolio transfers, transferring future claims payment obligation, and credit insurance have been around for some time, new insurance programs for financial risk are beginning to emerge. Some corporations are looking for ways to use insurance to free up capital that sits dormant on the balance sheet as reserve capital. I think corporations are beginning to recognize that across the entire playing field, there are a number of risks and they may not be treating those risks on a uniform basis, says Doug Oliver, VP and director of Chubb s Financial Solutions Division Inc. in New York. The goal is to try to coordinate a solution.
Solutions come in a number of forms.
Many offer credit insurance, which covers third-party losses and insures profit margins. Companies using these solutions range from banks to energy companies, from tire manufacturers to grain growers. The reasons are as varied as the companies themselves, and range from reducing balance sheet risk to giving collateral value to transactions, as well as integrating hazard risk and grain handling volume risk into one financial cover. We have our clients view insurance less as simply transferring hazard risk and look at it more as an alternative to debt or equity, says David Langman, managing director at MMC Enterprise Risk, Atlanta, a division of Marsh. It s always been perceived as a necessary evil and one has to buy it cheap.