Professional Reinsurer
In the insurance field, we have insurance companies, which is where every individual or company goes to get insurance policies, and then there are reinsurance companies. Now, you might ask yourself what is a reinsurer as it probably isn’t a term that you encountered unless you work in an insurance company. Simply put, a reinsurer is a company that exists to give insurance companies financial protection. If an insurance company signs a policy that offers more coverage than they can cover, they turn to a reinsurance company. Like that, an insurance company has access to more business that would otherwise be too expensive or costly for them to cover.
What does a Reinsurer do?
As mentioned above, the sole purpose of a reinsurance company is to provide additional insurance options that a typical insurance company doesn't offer. Yes. I know … a lot of insurers here, but we’ll simplify. The only business for reinsurance companies is to reinsure insurance companies. No individual person or company can go directly to the reinsurance company for coverage. They are very rarely even aware that a reinsurance company is involved at all in the process.
The insurance company is the one that individuals and companies go to so that they can purchase insurance policies. They sign a contract, and the policy goes into effect. Those individuals and companies then became policyholders who pay premiums to the insurance company by paying, let’s say, $100 and get coverage in case of damage of $10,000. The insurance company will pay the coverage for possible damage and reimburse the policyholder.
However, when an individual has an asset that requires a much higher coverage than the insurance company can give, are they to turn them away? If that would have happened, then the Titanic wouldn’t have been insured by anyone. Yes, that Titanic. An insurance company did insure the Titanic, however, and did pay damages once the cruise ship sank. The damages were so astronomical that the insurance company, which was a big one (Commercial Union), nearly went bankrupt and needed years to recover.
That might be one of the reasons why reinsurance companies came to be. Because an insurance company won’t tell their customers that the asset can not be insured, they will find a way to ensure it for their customers. This is where the reinsurance company comes in. The insurance company transfers part of the risk and premium to the reinsurer through cession. Like that, if worst comes to happen, the reinsurer covers a large amount of the damages. Reinsurers also aid insurance companies in case of natural disasters when thousands of claims come at the same time, and the coverage is too much for insurers to cover.
What types of Reinsurance are Reinsurers Offering?
There are only four types of reinsurance policies that are offered by reinsurance companies:
- Facultative Reinsurance - covers single insurance policies like life insurance for a very wealthy individual;
- Treaty Reinsurance - covers a large amount of similar risks;
- Proportional Reinsurance - the pro rata share of premiums and risk split between the insurer and reinsurer;
- Non-proportional Reinsurance - covers losses based on the size of those losses.
Popular Insurance Terms
Exemption in ocean marine policy for losses caused by strikes, riots, and civil commotion. ...
Illness contracted as the result of employment-related exposures and conditions. Coverage for such diseases is found under workers compensation insurance. ...
Person covered under an employee benefit insurance plan. ...
Type of court bond filed on behalf of the defendant and used to release assets to him or her that have been attached pending a court decision. ...
In some life insurance policies, provision that permits the beneficiary, upon the death of the insured, to receive not only the death benefit payable under the policy but also all premiums ...
Coverage on an all risks basis for loss or damage to fur and jewelry at any location. Furs and jewelry must be scheduled in order to be covered. ...
Principle of law recognizing that injured persons may have contributed to their own injury. For example, by not observing the "Don't Walk" sign at a crosswalk, pedestrians may cause ...
Rule that concerns the distribution of the aggregate surplus among the policies in the same proportion as each respective policy has contributed to the surplus. ...
Model state regulation that governs method of selling life insurance to prevent fraud or misrepresentation by agents or insurers. A life insurance disclosure model regulation to help buyers ...
Have a question or comment?
We're here to help.