If you’re in the insurance business, you’ve undoubtedly heard the term reinsurance uttered amongst your business colleagues. You may have wondered what it meant and perhaps even what it could mean for your company. The fact is that despite recent worldwide economic downturn, the financial outlook for reinsurers remains promising. If you haven’t already, now is a great time to learn more about the reinsurance industry and what it could mean for your business.
What Is Reinsurance?
In simple terms, reinsurance is “insurance for insurance companies”. Reinsurance occurs when two or more insurance companies enter into a reinsurance agreement. Reinsurance is a thriving industry and according to the Reinsurance Association of America, the roots of reinsurance “can be traced as far back as the late 14th century”. Even though not all insurance companies engage in this specialized segment of the insurance market, reinsurance is actually a regularly applied practice.
The Benefits of the Reinsurance For Your Business
The reinsurance market allows insurance companies to share or completely transfer the financial risk associated with meeting their individual policyholders’ needs. By purchasing an insurance policy from another insurer, the original insurer reduces their exposure to losses and limits their monetary liability. A reinsurance policy also empowers insurers with the option to provide protection and higher coverage limits to clients that they would not normally be able to offer. Another attractive benefit of reinsurance is stabilization against the radical fluctuations of profit and loss margins, especially in the time of catastrophe and disaster.
Tips For Reinsurance Market Entry
– Reinsurance is a market based on a proven business model that has seen success on a global scale. The Reinsurance Association of America even reports that anywhere between 50 to 67 percent of the United States reinsurance premiums are written by foreign companies. So, don’t just think domestic. Seek out reinsurance partners across the globe with the knowhow and experience to make your partnership a success.
– Reinsurance contracts do not have to be limited to an agreement between just two insurers. You can partner with multiple companies on large policies to spread the overall risk.
– Educate yourself on the latest reinsurance legislation and regulation practices. There are a number of professional organizations dedicated to the reinsurance industry. Many primarily serve to educate on the best practices for industry compliance and success.
– Lastly, while the reinsurance agreement between insurers can vary greatly from one company to the next, it is a sound business practice to make sure that the losses each insurer will sustain under the joint policy be clearly stated within the terms and conditions of the reinsurance contract.