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Reinsurance Insurance Explained
Have you ever wondered who insures the insurance companies? This is the job of the reinsurance company. If an insurance company does not wish to bear the full risk of their potential liabilities they can get insurance themselves from a reinsurer. Reinsurance companies only deal with wholesale policies in this way and never sell retail policies to the public. The insuring company pays the reinsurer a premium for bearing this extra risk. This way it is designed as a way of generating easy capital for the reinsurance company as claims are rarely made by the insurer unless a large event or incident occurs.
Who is a potential candidate ?
Reinsurance is designed specifically for insurance companies. Reinsurance is necessary to spread risk in areas where the insuring company has a chance of making significant losses in the event of a significant incident like a major terrorist attack. Even in less significant of circumstances insurance companies still look to offset some of their risk so they are confident they can always pay out claims without any danger of insolvency.
What typically does it cover?
Everything that the insurer covers in a standard policy, this is covered by reinsurance. Ppolicies have to be identical to the insurer's policy for reinsurance to work effectively. As an example, if a home insurer does not insure pensioners, the reinsurer has to insure them also. This is because the insuring company needs to be able to make a claim in the event they have to payout a claim to their clients.
What typically does it not cover?
As a this type of policy is designed to cover an insurer's insurance policy there should be no omissions or differences between the two, so the reinsurance policy should not have any areas that will not payout in the event of the insurer needing to payout themselves. If there are discrepancies then the insurance company can get into real trouble as they may not be able to claim monies they need to satisfy the claims they are receiving.
Additional coverage that policy holders might take out in this area
Reinsurance is a situation of insuring the insurer. Each insurance class can be covered by reinsurance but there is no reason to have extra insurance from the reinsurance company. As reinsurance rates can be quite high, no Additional coverage are necessary.
Additional coverage doesn't really apply to reinsurance as each policy has set criteria that must be met for the reinsurance policy to be fulfilled. This is a form of niche, wholesale insurance that has no precedents and all polices have to be redesigned specifically for each eventuality.
What will it typically cost?
You can't put a price on reinsurance because it is purely up to the reinsurance company how much they want to cover the risks. Reinsurance companies basically dictate the prices of the insurance business as a whole by their reinsurance demands. Ultimately, this cost is passed onto the consumer and their retail policies. Each reinsurance agreement is tailored specifically to the insurers needs. Every insurance class conceivable can be covered by reinsurance.
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