Evolving from Alternative to Complementary Risk Transfer

DARREN TASKER: On the builder’s risk side, you’re seeing a change in [natural catastrophe] focus [in terms of risks being underwritten]. Predominantly, we’re very focused on California quake and Florida windstorm and those typical events now, with the amount of severe convective storms that are occurring and becoming more frequent where the construction activity is happening.

There’s been a slight shift in the types of projects as well. Now we’re seeing data centers, a lot of that type of construction—and then, of course, a lot of infrastructure spend coming. The aging infrastructure in this country, investments are starting to come through. Overall, the market is relatively stable.

TASKER: They’re massive facilities, so it’s not insignificant capacity. You’re also seeing a lot of [cases] where they’re initially just building what we call the core and shell of the facility, and then a separate company at times will come and install the equipment, the servers, and everything else.

And because of the values there that we’re talking about, and the potential exposure to severe convective storm, what’s our maximum exposure? What is the most capacity that we’re able to deploy? And then, from a faulty workmanship, design defect perspective, making sure that these projects are executed properly and without loss. Another major focus or concern when underwriting is the sheer business interruption values—we have some where it’s $10 million a day lost revenue.

TOM HOULIHAN: It’s not just the preponderance of these projects that are coming out, but it’s also the massive scale…and the capacity required by the clients that are putting these into place that’s needed. Frankly, it’s capacity that’s beyond the marketplace as it stands now.

This is where alternative risk financing, alternative risk capital, comes into play. The capacity that we deploy in an alternative risk setting is separate and distinct from what we’re putting up on a traditional [setting]. Most carriers don’t have that ability. We do. For instance, in builder’s risk, we can provide some solutions not only from a builder’s risk property standpoint, but also from a liability standpoint.

HOULIHAN: Absolutely. In the last few years, a lot of our broker partners have set up their own alternative risk groups within their broking abilities. Just about every broker we talk to is talking to us about what we can deliver to them in this way. We’re now starting to think about it as complementary risk transfer, not alternative risk transfer.

But the scale, with what we’re seeing now, there’s a lot more entrance into the space, providing capacity. This is not slowing down. This is something that’s speeding up, and it’s not dependent on hard markets anymore.

That was another thing. [ART] used to be really driven by increasing costs. But now clients are understanding that the benefits are not just from a cost perspective. It’s managing the volatility long term, it’s managing attachment points, it’s managing how much risk they’re retaining. So the brokers are coming to us constantly with problems that they need solving, not just with big clients, but also with mid-market and smaller clients as well.