Change in today's fast-changing financial environment has risk management less traditional and certainly not a one-size-fits-all but is indeed changing into a more innovative solution, specifically through alternative risk transfer (ART) mechanisms. It is, in essence, transferring insurance risk using ILS, which are financial instruments claimed to be developed for transferring the risk of insurance to capital markets. Originally, ILS covered big risks and natural catastrophes, but are currently known to manage individual risk.
This paper discussed how ILS work, cases of its application in the protection of individual risk, and the pros and cons of using ILS.