MIAMI – Gig economy risks are a natural fit for the alternative risk transfer market, a panel of experts said.

The flexibility that captives and other vehicles can offer on policy wordings and the claims data collected by captives can be used to develop coverage tailored to the specific risks of gig economy companies, such as ride-share companies and their affiliates, they said.

“The captive industry is well positioned to capitalize on this evolving economy,” said Peter Foley, corporate and business development manager at Arsenal Insurance Management, a captive manager in Montgomery, Alabama.

He was speaking Wednesday at the World Captive Forum in Miami, which is sponsored by Business Insurance.

Alternative risk transfer vehicles can be structured to ensure that insurance coverage corresponds with the emerging risks arising from companies that use nontraditional business models, he said.

“We can bridge the gap between traditional insurance versus new economies,” Mr. Foley said. “Traditional contract coverages aren’t going to cover the exposures.”

Mr. Foley said an insurance program he worked on for HyreCar Inc., a Los Angeles-based company launched in 2015 that allows car owners to rent vehicles to rideshare drivers, made use of a risk retention group and a captive.

When HyreCar was formed, coverage for the program was underwritten under a traditional hire car policy, but there were gaps in the coverage, he said.

To provide customized coverage, HyreCar used a risk retention group, which provided for more flexibility in coverage wordings, Mr. Foley said.

At the same time, the company’s technical staff worked with outside insurance experts to design a database to collect underwriting information, he said. And it used the technology platform to build in usage-based insurance to adjust the premium.

Since 2016, the underwriting results have been profitable. The program was eventually moved to a traditional insurer, using the manuscript policy, and the RRG participates as a reinsurer, Mr. Foley said.

In 2019, HyreCar saw increased physical damage losses, in part due to high loss adjusting expenses and fraudulent claims, he said. RRGs can only cover liability risks so the company established a captive to cover the physical damage exposures and take better control of the risks, Mr. Foley said.

Gig economy companies are often more open to using alternative risk transfer mechanisms than companies in the traditional economy, said Robert Arowood, president of Appalachian Underwriters Inc., an Oak Ridge, Tennessee-based managing general agent. In addition, insurtech companies, which compete with traditional insurers, often are more willing to offer customized insurance, such as usage-based coverage, and many insurtech use captives, he said.

“Most of the insurtech guys have capital-light structures, so maybe they started as an MGA with a captive behind them, so they did not have to put up much capital,” Mr. Arowood said.

Later, they may capitalize the captives as traditional insurers, but unlike a traditional insurer they don’t necessarily look for rating from A.M. Best & Co. as they look to “stretch” their dollars, he said.