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Under-Utilization of Alternative Risk Transfer
The main reason that many companies shy away from using ART is due to the inertia that companies experience when considering ART as a form of risk transfer. If companies have been successful in the past with a more conventional and well-documented form of risk transfer, those companies will tend to remain with their existing form of coverage and become very reluctant to shift. This unwilling and cynical response, coupled with a lack of historical data and precedent, has generated a stereotyped stigma that categorizes ART as an untested and unpredictable form of managing risk. However, the skepticisms of businesses and risk managers are not misplaced. It is not uncommon for companies to either under-protect or over-protect their risk precisely due to the fact that ART is still largely unrefined and inexperienced. Yet, the largest determining criterion for the reluctance of companies to adopt ART in their business is that utilization of such a system usually requires a full foundation-to-roof restructuring of culture. Employees must adapt, along with the company, to view risk through a different perspective; as well as, adjust corporate methodologies of analyzing and calculating risk.

There are 3 key components that companies must account for and fully understand when considering the application of a form of ART in the corporate setting. As ART is still in its infancy, the stringent standards that govern conventional forms of risk transfer do not exist in ART products. This allows products to be tailored to the unique situation of the company; unfortunately, customization of ART products cause difficulty when gauging the appropriateness and reasonability of a quoted price as well as the fairness of the terms of agreement. The lack of historical backing and burdening amount of doubt greatly attributes to the uncertainty when considering such products.

Considerations to Reduce Uncertainty
Fully Understand the Product


 * The functionality and applicability found in customized ART products leads to difficulty comparing and determining a favorable price and fair terms
 * What is the operation of the product and how is it executed?
 * How does this product affect a company’s economic capital requirements?
 * What is the inner working of the product and what are the rewards given specific conditions?
 * How severe will the cost of this product be to a company’s capital?
 * What history does this product have with other companies in their dealings?
 * How does it compare to traditional means of coverage?

Know the Seller


 * Due to the lack of history and many unknown variables, practice extra caution when reviewing the product for compatibility.
 * How has this coverage performed in the past? Does it pertain to the current deal?
 * Can previous/current customers provide feedback on performance of company?
 * In the event a company is inexperienced in bundling ART deals, does the company demonstrate competency in the ability to perform such a deal?

Regulatory and Accounting Standards


 * ART products began to make a reputation for themselves in the 1990s when numerous markets and institutions began breaking the barriers that made them mutually exclusive
 * Caused ART products to become increasing complex as a single product may be susceptible to multiple regulations and standard boards
 * Expert legal and financial consultation is strongly advised.