The Advantage of Alternatives

Softened market conditions in 2026 mean it’s a buyer’s market for insurance products.

That means those buyers—insureds, ceding companies—can and will push for cost reductions, higher limits, and other advantages, relying on the excess capacity in the traditional market to create competition between carriers. As Lee Mathewson, vice president of alternative risk and reinsurance at Nationwide, puts it: “We had a feast for a while where every line of business was in a hard market at the same time. And that is definitely over. It’s not quite famine level, but the feast years are in the past.”

But for Mathewson, this is also an environment where underwriters can distinguish themselves by finding ways to maintain rate adequacy, limits, and other coverage terms and conditions. In the alternative space, underwriters also have more tools in their toolbox to recognize how one client differentiates themselves from the industry average—another way for them to distinguish themselves in this new market environment.

This is especially important because alternative risk transfer still has a crucial role to play in this environment even as more risks move back to the traditional market, Mathewson says. There will always be lines whose more complex risk exposures the traditional market struggles to capture properly and insureds who do not receive the differentiation they deserve based on their risk management abilities.

Where Alternative Risk Transfer Comes In

The traditional market struggles to capture specific risk management practices an insured can implement in their operations to differentiate themselves from the industry average. As a result, commercial auto still presents opportunities to the alternative risk space, as underwriters in the space have more tools in their toolbox to be able to recognize how one client differentiates themselves compared to the industry average.

“If you are a client, if you’re an individual insured who really has differentiated yourself from your peers through your risk management practices—maybe it’s your driver training, maybe it’s your use of telematics and monitoring hours behind the wheel and miles driven—while capacity is available in [the] traditional side for cover, you can still get more favorable terms in the alternative risk space,” he says.

As an example, Mathewson cites a member-owned captive that provides buffer-layer commercial auto coverage for long-haul trucking companies. He points out that the reason the companies formed the captive was because they recognized they shared risk management practices around driver behavior and what it means to be good operators. “And so we have a captive available to them to offer buffer layer coverage, which is still hard to find,” Mathewson says.

This is where differentiation as underwriters comes into play, Mathewson explains. Here, Nationwide not only supported formation of the captive but also distinguished itself by building stop-loss coverage insulating member-owners from extreme losses as the captive grows and matures.

Finding the Right Alternative Risk Partner

Strategic alternative risk partnerships like that captive naturally require a specific partner. Mathewson believes insureds should seek a partner that understands their operations and can take a holistic view of the risks the company may face.

“It can be easy to live in a world where in an average year, you won’t have any losses, and you’ll make strong income as a result,” Mathewson says. “But the Titanic did sink, and even in instances where an insured does everything right, there are going to be years where tail events happen.”

An alternative risk partner, whether it is broker, MGU, or carrier, should have both experience and expertise in evaluating financial strength, he adds. Being able to lay out the magnitude of an insured’s potential loss in a challenging scenario, concurrent to when an insured’s balance sheet might see related stressors is key, Mathewson says. It allows the insured to make better-informed decisions on what level of risk to maintain and whether they can absorb such a loss.

Overall, Mathewson believes insureds should seek partners for the “long haul.” Those partners will be invested in truly understanding an insured’s risks and balance sheet and will be open to asking, in his words: “Are you still comfortable retaining this level of risk? If not, let me work with you, and we can restructure.”