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...

Vehicle Insurance
Vehicle insurance is the category of insurance products that cover, surprisingly enough, vehicles. These can be any sort of vehicle that you can think of, with of course the most common product...

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 -...

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...

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...

Motorbike Insurance
Motorbike insurance might sound like a bit of a niche category of insurance, but there are actually a huge number of people who ride these sorts of vehicles, and so even within this there are...

Pet Insurance
People love their pets - whether you are a cat lover or a dog lover, or prefer something like a rabbit, a guineapig, snakes, hamsters or indeed any animal that you can think of, then pet insurance...

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...

Van Insurance
Most people know about car insurance, but what about van insurance? Clearly if you drive a van then you need to know about van insurance. There are various different types of van insurance which...

What Is Insurance?
What exactly is insurance? It sounds like a very basic concept, but it is important to know what insurance is, in order to work out why insurance is so essential to modern-day activities, and why...

Travel Insurance
One of the most common forms of insurance product is travel insurance. Wherever there is travel involved, there is invariably risk, and infact a range of risks, and therefore an insurance product...

 © © Insurance Details    |    Copyright and disclaimer    |    Insurance Details