What is the difference between an Insurance and a Guarantee?

Hartwell Insurance makes considerable use of Guarantee Contracts and Guarantee Funds so what is the difference between an Insurance and a Guarantee Fund?

Insurance

An Insurance Policy is a ‘risk transfer’ policy whereby the Insurer can lose financially via the transaction. The date of a claim is unknown and the amount of the claim is unknown too and once the claim has been paid the Insured is free to renew with another Insurer and not payback the one which has paid the claim. This is all part of Insurance and makes insurance what it is – risk transfer, uncertainty as to loss and loss amount. This all adds up to considerable potential downside for the Insurer.

Guarantee

A Guarantee is different. It is one of the most basic contracts possible. It is where one party pays a sum of money and in return the other party guarantees to do something or to provide a service. Hartwell’s Guarantees are in the form of either fully paid up contracts or crowd funded programs. In either case there is no risk transfer. Hartwell acts only as an administrator using their knowledge and capacity as a regulated body to run the Guarantees for the benefit of their clients. The client receives back from the Guarantee only the amount they as an individual or collectively have put in. There is still uncertainty as to loss amount and timing of the loss but otherwise there is crucially no risk transfer The Guarantee Contract that Hartwell issues cannot be exceeded and Hartwell does not back the Guarantee with any of its own Capital.

A Guarantee contract is not an Insurance contract as it does not fulfill the criteria of risk transfer.

Summary

So an Insurance contract is always superior to a Guarantee Fund? Well, we would always advise people to seriously consider buying an Insurance contract over only relying upon one of our Guarantees. If the Insurance is fairly priced then as a method of reducing risk it is a powerful financial instrument and being part of the Insurance Industry we would always support our fellow Insurers who very often do an excellent job of work for their clients but…. The truth is that an Insurance contract isn’t always the best or indeed only solution available to Insureds. In fact Insurers very often try to remove themselves from risk by applying substantial deductibles or excluding exposures all together. Take, for example, Earthquake in California – this is a normally excluded peril under a Homeowners policy, and even if purchased separately often the Earthquake Policy will itself have a substantial percentage deductible applicable and carries a substantial Premium. Our Earthquake Guarantee Fund carries no deductible and is cheaply priced if you want to cover the deductible under your Earthquake Policy then putting that element into our Guarantee is an also option. If the Insured considers the price of the Earthquake Insurance too great then being in the Guarantee Fund is an option.

Let’s look at Florida or Louisiana or perhaps at the Peril of Hail or Flood in Texas, these are all subject to substantial deductibles under an Insurance Policy resulting in the Insured carrying substantial risk for own account. Hartwell can use their Guarantee Funds to buy down the exposures of clients in these areas thus complementing the purchase of an Insurance Policy.

Because we don’t take risk, because we crowd fund exposures and because we issue Guarantees and not Insurances we can offer clients the opportunity to have the elements of their Insurance policies that are excluded or are considered too expensive, covered. Our policies may not entirely replace the efficiency of an Insurance contract but they can certainly complement them. Think about it. Why should an Insured not be allowed to handle the deductible that they retain under their Insurance contract via a different financial instrument? If an Insurer does not want to insure an exposure, or wishes to limit a certain exposure should that be the only avenue available to the Insured? With a Hartwell Guarantee we help Insureds address the difficult risks and exposures that Insurers don’t want or price too highly. We offer contracts where there are no deductibles or minimal deductibles. We accept difficult to Insure risks, we are looking to pay claims and not use ‘small print’ to avoid them. We complement the offering of the standard Insurance Carrier by offering our expertise to put together non risk bearing contracts that help the Insured address the parts of their Insurance placement that worry them and that Insurers do not want.

A Guarantee is not an Insurance contract and we make that very clear in all of the Guarantee Contracts that we issue but it can and does complement an Insurance contract purchased elsewhere. We deal with the difficult to place parts of the Insurance world. We are there to really help and support the Insured in the hard parts of their Insurances. We offer bespoke solutions in a world where most insurers are offering ‘off the shelf” what we try to do is to make a difference, to bring our knowledge and our company to help Insureds and to give them an answer to the real problems that they want solving. A Hartwell Guarantee truly is coverage for the people, generated by the people. It isn’t an Insurance contract but it can complement one and together can help provide the Insured with all of the solutions that they need at a price that is fair.