Multiple risk finance vehicles exist. The most common vehicles used in the South African market include, Contingency facilities, Multi-year Spreadloss facilities and first party cell captives.

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First party cell captives and contingency facilities are used to insure and entities own risks and useful as corporate governance and risk management tools, as they provide organisations with a single vehicle in which to insure all enterprise related risks.

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The decision whether to use a contingency facility or cell captive, stems mainly around the size of the facility, cost and level of ownership and control required by the insured.

 

Multi-year spreadloss facilities are more relevant when deductible structures in conventional insurance facilities are significant, that in the event of a loss the business may suffer severe financial cash flow implications and is often used to build capacity as an alternative to utilising banking facilities, which may be needed for working capital elsewhere, especially in tough economic environments.

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​The benefits of these structures include:
 

• Centralising of risk management functions in group structures that allows for the sharing of risk within the group.

• Reduction in the cost of conventional insurance.

• Allows companies to retain risk and share in the profit potential of an integrated risk management program.

• Access to direct insurance and reinsurance markets (local and international)

• A selection of investment instruments to enhance returns and increase capacity.

• Flexibility to create a customised insurance program to respond to the client’s specific risk exposures.

• Budgeting certainty in that the cost of risk can be determined more accurately.

• Actuarial input on appropriate cell risk retention to determine the optimal risk transfer / risk retention levels.

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Contingency risk finance structures are easier and simpler than the cell captive solutions and more relevant where smaller exposures are involved. Typically, an amount of premium is paid into a policy that is structured to cover multiple perils.  It could however also be structured to focus mainly on one peril such as motor fleet insurance.

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These structures can be put together for a single entity or group of business units to assist in managing their cost of risk within the organisation.

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Such a program would typically include an inner deductible which the client will still pay for their small insurance incidents, supported by a further deductible that could comprise an each and every loss limit, with or without an aggregated value.

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These structures can also be written into first party cells. First party cells are less appealing for small and single peril risks due to the capitalisation requirements.

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An example of a fleet structure could look as follows displayed visually: