Structured risk solutions: reducing insurance costs and volatility

Structured risk solutions can represent an attractive alternative to traditional insurance programs, allowing businesses to be less reliant on traditional market cycles and reducing both pricing and self-insured loss volatility. They usually complement traditional insurance programs and can reduce overall insurance cost. However, structured risk solutions are not suitable for all risk scenarios.  

How structured solutions work

A structured risk solution program usually lasts between 3-5 years and is tailored to the company’s needs with risk-sharing arrangements between the company and the insurer. This includes access to a range of pre and post-loss funding mechanisms such as loss-sensitive features, aggregate retentions, loss ratio triggers, and reinstatement provisions. A structured solution also takes advantage of a company’s risk diversification across multiple risks and time and can enable a company to profit from good risk management and loss history. Simpler forms of structured solutions can include aggregate stop loss protection which are typically annual programs with the aim of providing a company protection in the event of a series of large loss events in one year.

Unlike traditional insurance policies, structured risk solutions keep insureds free from annual renewal requirements due to the long-term nature of the deal. Despite this difference, both usually run concurrently.

Benefits of structured risk solutions 

By exploring structured risk solutions, clients are trying to improve their total cost of risk. While structured risk solutions may initially be more expensive to set up than traditional methods, they can offer overarching savings that can be lucrative for clients. Benefits may include: 

  • Consolidated buying strategy across multiple lines 

  • Improved total cost of risk 

  • Reduced cash flow/P&L volatility 

  • Capacity certainty 

  • Loss volatility smoothing 

  • Profit potential 

  • Significant downside risk protection 

  • Less reliance on traditional market cycles 

  • Ability to retain more risk 

  • Greater investment in risk management strategy 

  • More bespoke coverage 

  • Reduced capital requirements 

  • No need to play the annual game in the most volatile risk areas  


The underwriting process is analytically driven, focusing on good quality, long-term claims data over the course of 10 years or more. Potential insurers will need to understand how the business has changed over the years. They seek to know factors such as why the company in question is different, or why the claimant is getting lower loss ratios than the market is giving credit for.

More specifically, multi-year structured solutions will suit clients with a 25-30% insurance rate. This is because insurers manage the volatility of the portfolio over the 3–5-year arrangement and can use a toolbox of pre and post-loss financing mechanisms. However, annual aggregate structures are also suitable for clients with much lower insurance rates but with material self-insured retentions across their insurance placement. To ensure that a structured risk solution is appropriate, the total cost of a structured deal needs to be evaluated to see if it improves economics for the insured.

Understanding the business’ claims history is crucial, including understanding a firm’s uninsured losses. Analytics is also key to the success of a structured solution. Before asserting whether a structured risk solution is the correct next stage, all the business’ claims across multiple lines need to be evaluated to find out which costs should be allocated to a specific risk.


Setting up a multi-year agreement requires input and information from a variety of sources, making the process more complicated than traditional risk solution methods.  

  • Long structuring process can add complexity 

  • Requires internal education/buy-in from key stakeholders 

  • If loss activity is higher than expected, structured solutions might be more expensive 

  • Still requires traditional insurance to sit on top of structured solutions 

  • Structured solutions are often optimal when used in conjunction with a wider captive strategy.  However, a captive is not needed to design an effective structured solution.   

Industry trends

Currently, the reinsurance market in many areas is proving difficult to navigate, which is why the multi-year set up of a structured solution is generating interest across a variety of sectors, industries, and risk areas.

Examples include property and liability classes among various manufacturers, contractors, and distributors as well as recycling and waste management companies. More specifically, there is also interest in structured risk solutions in more challenging markets such as product liability and recall risks. Generally, large industrial companies with high-risk profiles but a relatively low loss ratio tend to benefit from a structured solution. Also, businesses with a consolidated buying strategy coupled with a strong risk management culture can benefit from long-term cost savings.

Over the years, we have seen these types of solutions deployed for companies with a large trucking fleet exposure to help with their auto liability risks. However, more recently we have seen a shift toward these solutions in any organization that has a large fleet exposure. The auto liability marketplace has seen a dramatic rate change combined with a severe compression of capacity over the past quarters. Commercial insurance carriers are further pushing up their attachment points on their umbrella risk thus providing a need for creative alternative risk solutions.

For industries where reinsurance capacity is scarce and markets are in distress, such as transportation, US property and casualty, or international markets for professional indemnity insurance, structured risk solutions can offer an attractive alternative.

Suitability check

Structured risk solutions can be used both strategically and tactically within an insurance placement.  Recent trends have demonstrated an increase in demand for risk areas the traditional insurance market is neglecting because underwriting risk appetite is either low or restricted. Below are a few more specific indicators for when exploring structured risk solutions may be worthwhile.  

  • Premium levels are at least $5M across the various towers 

  • Company has a high perceived risk profile but relatively low loss history 

  • Client wants to develop a multi-year and multi-line buying strategy 

  • Interest in obtaining aggregate & cash flow volatility protection in the event of a series of large self -insured loss events   

  • Interest in maximizing profit from effective risk management strategies 

  • Seeking to build up profit and capital within a captive arrangement 

To find out more about structured risk solutions, watch Lockton’s recent Webcast Replay | Structured Risk Solutions 101 (opens a new window), or contact: 

Peter Rapciewicz, EVP - Alternative Risk Practice Leader


James M. Donald, Head of Risk Finance


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