Alternative risk transfer may be the term on everyone's lips, but it is not yet written in their hearts.

Although European risk managers are interested in the possibilities offered by risk transfer products other than traditional insurance, several factors are holding them back from dipping their toes in the water.

Not least is the mystique surrounding the concept. Swathed as it is in terms linked more to banking than insurance, risk managers are finding themselves deciphering foreign jargon. And the structure of the programs can appear complex and sometimes baffling to risk managers.

"As with any new concept, the language is airy and fuzzy," said John Canavan, group risk management director with London-based Cadbury Schweppes P.L.C. "People haven't really got their act together to put it across in a simple way."

Part of the problem may well be that there is no hard and fast definition of what "it" is. The term "alternative risk transfer" is applied to anything from captives to some catastrophe insurance products, and may include everything in between.

"It is in danger of getting an all-singing, all-dancing title," warned Clive Pracy, risk management consultant with Andersen Consulting in London. "I don't know that anyone really knows what it means."

A recent study published by the corporate risk solutions unit of Sedgwick Ltd. aimed to glean a clearer picture of risk managers' views of alternative risk transfer. In a questionnaire sent to about 650 major corporations, mainly in the oil and energy sector, Sedgwick tried to establish their attitude toward conventional vs. financial risk management.

Most companies responding to the survey said they believed financial and traditional insurance risks will remain separate, though there is consolidation between these two areas of the financial services industry. Even so, looking at the utilization of alternative risk transfer products by the respondents, most were more actively considering finite risk insurance.

"Interest varies inversely with product complexity," commented the Sedgwick report. "Finite risk is an insurance-based product grouping used mainly to stretch a traditional insurance contract and stabilize cash flow during the period. As such, it is the easiest ART product to integrate into a corporate risk management strategy. As the solutions become more exotic, they become increasingly difficult to integrate and require different skills and different levels of authority within the corporate management."

Other survey findings include:

* The majority of companies that want to access capital markets for risk financing are interested in catastrophe bonds.

* Companies with a high cost of risk generally are those not currently using alternative risk financing programs.

* Companies that currently buy a lot of insurance don't expect to use alternative risk transfer programs.

* For many companies, insurance products will be more relevant than alternative risk transfer arrangements for their risk financing requirements.

* Anticipated alternative risk transfer use over the next five years is an "all or nothing" situation. Companies either definitely will or definitely won't embrace such programs, the survey found.

* Environmental risks are the most likely to be suitable for alternative risk transfer solutions, though the survey authors note that this finding may be skewed by the number of energy companies surveyed. The next most popular areas for these products were balance sheet protection, business interruption and liability exposures.

Overall, Sedgwick found that "ART products are wanted to address issues that the current insurance markets are unable to address effectively, whilst also providing a real commercial alternative to conventional insurance, both in terms of cover and in terms of cost."

Currently, many risk managers see the cost issue as a major barrier against using alternative risk financing solutions.

"When the market changes, it may become an option," said Jeremy Meyrick-Jones, director of group risk management with British Aerospace P.L.C.

Farnborough-based British Aerospace is "keeping an open mind" about alternative risk transfer programs, though hasn't yet taken the plunge. "It really depends on what happens to the (insurance) market," said Mr. Meyrick-Jones, though there does in general seem to be an increasing interest in products to cover previously uninsured business risks, he added.

Whether that opportunity is met by insurers extending their product range or financial services organizations such as banks wanting a piece of the action remains to be seen. In Mr. Meyrick-Jones' view, though, insurers that do not expand their alternative offerings may be left behind by those that do.

It could be that the definition of alternative risk transfer automatically means accessing a non-conventional market, argued Mr. Pracy. This could well mean the capital markets, but "apart from the super-catastrophe levels. . . .I don't think the capital markets are there as a serious market at this stage."

One user of alternative risk transfer is Thierry van Santen, director of risk management for French food manufacturer Groupe Danone. Alternative risk transfer products allow an organization to better manage its self-insured risks, said Mr. van Santen.

Groupe Danone is using several programs that fall under the alternative risk transfer umbrella. Mr. van Santen said these include "captives, finite risk and some specific bonds from the market for specific risks."

He estimated that up to five other French corporations now have sophisticated alternative risk transfer programs in place, while progress by other organizations is hampered by risk managers' lack of understanding.

Free copies of the Sedgwick study, "Alternative Risk Transfer & Disaster Recovery," are available from Chris Mundy at Corporate Risk Solutions Sedgwick Ltd., 44-171-377-3456.