ABSTRACT
In the wake of the hardening insurance market, precipitated by the events of 9/11, many traditional insurance buyers find themselves being faced with having to self-insure significant levels of risk or, alternatively, they are electing to retain more risk because their own ‘cost of risk’ valuations are less than the equivalent imputed by insurers when calculating insurance premiums. At the same time a new breed of potential insurance buyers/drivers has emerged, namely financiers and regulators. The next few years will be critical for the insurance industry since it will need to re-appraise its offerings to traditional insurance buyers to reflect the modern risk managed environment and, at the same time, to radically alter some longstanding insurance traditions if it is to meet the needs of financiers and regulators who seek certainty and ‘pay now argue later’ risk transfer contracts. This chapter considers how traditional insurance buyers’ attitudes to risk transfer have changed, or been changed, in recent years and how regulators and rating agencies have come to recognize the existence of ‘operational risks’ and are creating an environment where risk transfer alternatives are increasingly being sought.
