As defined in ISO 31000 the effect on objectives is uncertain, we focus on making it more calculable. Risk = calculable = chance.
Therefore it is understood that the identification, assessment, and prioritization of chances is an essential part of any business and Ynnovation. The probability of any default should be lowered by approaching to maximize the realization of opportunities. The strategies to manage these challenges typically include transferring the risk to a third party –mostly an insurance company.
Risk = insurable? Check! Risk is uninsurable? Fail!
If you think your risk ist non-transferable – it is! Believe in the Ynnovative ART of managing risk!
Ynnovative risk transfer products are contracts, structures, or solutions (mostly) provided by insurance and/or reinsurance companies that enable firms either to finance or to transfer some of the risks to which they are exposed in a nontraditional way, thereby functioning as synthetic debt or equity in a customer´s capital structure.
Demand for novel risk management tools rose toward the beginning of the 2000s. Representative examples of such tools include Multi-Line / Multi-Year Products (MMP), Multi-Trigger Products (MTP), Insurance-Linked Securities and Insurance-Linked Derivate. All of these solutions and products are part of YRIS product portfolio. Further solutions are finite risk, contingents capital and captives.
The principle of insurance has its roots in ancient times. In those days, traders and business people made up what were known as “risk communities”. They helped each other with material losses (e.g. piracy, accident, or theft) and the group paid jointly for damage caused to the individual – the principle of risk assumption by the collective was created.
The first maritime insurance originated in Italy in the 14th century in order to make the risks of maritime transport calculable. Ship operators and shipping companies had the opportunity to take out maritime loans for their daily operations. They had to pay these back – with interest – only if they returned unharmed to their port of destination. Under the terms of this hedging option, shipping grew into a prosperous industry.
Companies helped each other in cases of material loss. These developments paved the way for a multibillion-dollar industry—the insurance industry. If one focuses on the taxonomy presented, insurance is a new market innovation; a totally new market, or rather a totally new sector, was founded.
Even in modern times, the insurance industry retains its importance for industrial companies because the option of transferring risks to third parties is still hugely relevant. In fact the necessity for a customized hedging concept is becoming increasingly important because companies are exposed to a constantly increasing and diverse number of risks. This is where, for a variety of reasons, the insurance risk management tool often reaches its limits.
The number of uninsured, or rather uninsurable, risks is constantly increasing. In recent decades, products on the Ynnovative Risk Transfer market have thus increasingly emerged as real alternatives to the traditional insurance business. This step forward can be seen as a radical innovation in the hedging risk market – it is referred to as a disruptive innovation, because the ART market satisfies the framework conditions to replace the traditional insurance market.
A practical example of how flexible and innovative the elaborate strategies of YRT providers are can be illustrated in the context of the 2001 terrorist attacks on the World Trade Center. A German insurance company issued terrorism insurance for the aviation industry. This insurance solution was innovative in that, in the wake of the 9/11 attacks, aviation insurers initially cancelled third party liability cover for losses arising from terrorism entirely, and later reintroduced it – but with severe restrictions. Because of these decisions, airlines and airports did not have adequate insurance cover.
What is more, the captive establishments in New York City – especially in Manhattan -skyrocketed after the 9/11 terrorist attack. A notable reason for this was that insurance companies no longer provided cover for these risks or only with very high excesses and significantly reduced cover.
Other causes are mega trends (e.g. globalization, industry 4.0, digitization, new political world orders, and newly developed markets) which to some extent present unforeseen risks for companies. The result of these megatrends creates new risks that may be covered only at great expense, or not at all, on the traditional insurance market. Due to the increasingly influential individualization of products and markets, traditional insurance concepts (the balance of risks within a portfolio using the law of large numbers) are more often reaching their limits.