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Reinsurance and What You Need to Know

In the insurance world, there are many assurances made and sealed with an insurance policy. Reinsurance is a part of those assurances pledged to you as the insured.

Reinsurance is insurance for insurance companies.  It’s a means for the insurance companies to transfer all or some of the financial risk that they assume in providing insurance for your business, home, or vehicle. So as you look for financial protection from loss from your insurance company, they must look for financial protection for themselves from reinsurers.

Obtaining reinsurance is costly for insurance companies, but is a necessary strategy to ensure their solvency in order to be able to pay out for any claims that you may have along with all of their other policyholders.  This is especially true in protecting their clients against catastrophic losses, such as a severe hurricane, earthquake, tornado, or flood, that can result in devastating damages to property and life. Having reinsurance helps to stabilize loss for the insurance companies.

As with everything else these days, the cost of reinsurance has also increased due to rising interest and inflation rates and global catastrophic losses.  (The reinsurers can represent all or most countries, not just the U.S.A.).  So naturally, the insurance companies must pass these increased costs onto you by way of higher insurance premiums, stricter underwriting requirements, and capacity for some insureds that can be prone to loss events simply by their location.

Keeping your property well-maintained and having a low loss ratio score (number of claims) has always been a positive for an insured, and now is even more important as a positive for the insurance company in their willingness to extend coverage to you.  In grammar, two negatives may make a positive, but never in insurance.

As always, reach out to us if you have any questions.

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