Reinsurance: Types, Purposes, Benefits, and More

Have you ever wondered how reinsurance companies in India are able to file thousands of claims in the event of a natural calamity? The answer may surprise you. Sometimes, it’s not a single insurance company paying out all the claims but multiple companies may be involved in the process. Even if you are insured through one company, another company might be paying your claim.  

Confused? Don’t be. Reinsurance is what makes this possible. Here is what you need to know about reinsurance. 

WHAT IS REINSURANCE? 

Reinsurance is basically insurance for insurers.  It transfers some of the liability to the reinsurer thus lowering the risk for the primary insurer and freeing up capital that can use to issue new policies. In this way, reinsurance brokers can lower the risk of financial loss in case of a major natural disaster. Reinsurance can be purchased either through an insurance company or brokerage firm that specializes in insuring primary insurers.  

TYPES OF REINSURANCE 

1. FACULTATIVE INSURANCE: Facultative reinsurance covers high-risk and high-value individual assets like a high-rise commercial building in a hurricane prone area.  It is underwritten for each asset or risk.
2. TREATY REINSURANCE: Treaty reinsurance works differently. It reinsures multiple policies. For e.g., the reinsurer might purchase a particular line of businesses from the primary insurer like all its homeowners or auto policies. All new policies issued in the same group would also be covered under the treaty agreement.
3. PROPORTIONAL REINSURANCE: With proportional insurance, reinsurance companies cover a percentage of claims in the event of a loss in exchange for a portion of the premium
4. NON-PROPORTIONAL REINSURANCE: In Non proportional reinsurance, the reinsurers only make the payment of the claim exceeds a certain amount. 

PURPOSE OF REINSURANCE 

Reinsurance allows insurance companies to stay solvent by restricting their losses. Sharing the risk also enables them to honour claims raised by people without worrying about too many people raising claims at one time.  Reinsurance also provides ceding companies that seek reinsurance the capacity to increase their underwriting capabilities. 

BENEFITS OF REINSURANCE 

1. DECREASES RISKS
   When reinsurance companies in India insures a large number of clients and their property, they take a huge risk. Reinsurance is a strategy used by insurance companies to reduce risk by placing some of the onus on the Reinsurance company instead of shouldering the entire responsibility alone
2. OFFERS VALUABLE ADVICE
   When consumers need insurance advice, they contact their insurance company but where can insurance companies turn to? Since reinsurance companies are experienced and skilled at understanding the patterns in the industry and the various risks that their clients face, they’re in the perfect position to provide guidance and support. This is especially helpful for new reinsurance companies and those insurance companies looking to explore new avenues.
3. HELPS WITH COMPANY EXPANSION
   As an insurance company grows, so do its risks. As a matter of fact, if the business of an insurance company is concentrated in a single industry or geographical area, then the risk increases ten-fold if an additional business is taken on.
   Reinsurance allows an insurance company to transfer this risk to another insurance company that does not have similar risks. This allows them to lower their risks and continue expanding even if all the clients are geographically concentrated. 

We are one of the top reinsurance companies in India and a composite broker licenced by the Insurance Regulatory Development Authority of India. We deliver a wide range of insurance and reinsurance services in India. Our experienced reinsurance team has a wide network, domain expertise and structure solutions after understanding your requirements. With over 450 highly skilled and motivated employees spread across 15 locations in India, we ensure the best solutions that meet your requirements