INSURANCE DETAILS

Reinsurance


The concept of 'reinsurance' is quite an interesting one. It comes down to the same sort of logic as 'who will guard the guards?' - in this case who will insure the insurers. The answer is, other insurers.

The idea is similar to the fact that bookmakers who take a massive bet lay off some of the money with other bookmakers so that if they lose the bet they can offset their losses by getting some winnings back from another bookmaker they bet some of the money with. Similarly reinsurance allows insurance companies to manage their risk exposure by purchasing insurance from another insurance company. This process results in something called a reinsurance agreement being produced between the two companies.

Sometimes reinsurance might be offered by another insurance company or by a specialist reinsurance provider that only deals in that particular business.

Risk transfer or risk mitigation is clearly a very attractive reason to consider using reinsurance, but there are other reasons too that can make it an attractive proposition. One of these is to smooth income simply because reducing risk means that the size of any losses are subdued (as are possible gains) and so overall income can be smoothed. It may also be possible to arbitrage a position through the purchase of reinsurance in some cases, for instance it could be the case that the reinsurer has a cost advantage from the power of economies of scale, or simply be willing to take on more risk.

So that is a basic outline of what reinsurance is, and why many insurance companies look to it for various reasons.

Related Articles...

Crop Insurance
There are two main types of crop yield insurance available, which come under the category of types of agricultural insurance product. It is self-explanatory what crop insurance guards against -...

Payment Protection Insurance
Until a few years ago, not many people would have heard of Payment Protection Insurance, commonly referred to as PPI. Now it is almost inescapable, with TV adverts and text messages bombarding...

Prize Indemnity Insurance
Prize indemnity insurance is a purchase that would be considered by someone offering a large prize and thus could stand to lose a considerable sum of money. This form of insurance would mean that...

Health Insurance
One of the most common insurance products is health insurance, a broad umbrella category that covers any sort of insurance product that helps an individual mitigate against the expenses that are...

Flood Insurance
Flood insurance is a specific product under the umbrella of insurance and it covers - as the name suggests - losses that occur due to flooding. In many cases, this form of protection (flood...

Property Insurance
Property insurance is a product that applies specifically to property, and has various different types of specific that are subsets of the general umbrella term 'property insurance'. Specific...

Contents Insurance
Contents insurance is a type of insurance product that covers the items that you have - the contents - of your home. There are a range of different providers of contents insurance out there on...

Types of Car Insurance
There are various different types of car insurance product that are available in the UK. The minimum level of cover that is available to meet legal requirements is a product called third party...

Saving on Home Insurance
Home insurance splits into the bricks and mortar insurance - buildings insurance - and the stuff that you put inside your house such as your valuables - the contents, hence that bit is called the...

Home Insurance
Home insurance is one of the most common types of insurance product, and anyone who has a home will be familiar with it. Home insurance is usually contrasted with contents insurance, which is a...

 © © Insurance Details    |    Copyright and disclaimer    |    Insurance Details