Tornadoes, hurricanes, earthquakes, floods and fires are just a few of the many disasters that can have property and casualty insurers and their clients running for the hills. Fortunately, reinsurance plays an important role in risk management by allowing insurers to manage risks associated with exposure to grand-scale natural and man-made disasters and catastrophic accidents. What is reinsurance? Investopedia.com defines it as the “practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim.”
Simply put, reinsurance is vital to the insurance field. It creates increased risk capacity for insurance carriers, allowing for more business to be written. And should the unthinkable happen and disaster strike, the insurers and reinsurers will share in the losses incurred, not bear the cost in entirety.
With reinsurance, extraordinarily valuable items and vast, complex risks are more easily fully covered and managed. Items associated with property and casualty insurance often in need of reinsurance include airliners, power plants and ocean liners. And reinsurance can also help cover the risk of the fallout from weather-related disaster, with crop shortages one example.
While reinsurance might not be a commonly discussed topic, it certainly has name recognition – and widespread use – in the insurance industry. As The Federal Reserve Bank of Chicago noted in a story published earlier this year, more than 90 percent of U.S. property and casualty companies paid premiums to reinsurers from 2004-2013, with 79 percent of life insurance companies also employing reinsurance services.
Want to learn about the many strategic insurance and risk management solutions The Plexus Groupe provides in property and casualty, employee benefits and other lines of business? Visit us on the Web at plexusgroupe.com, or contact Plexus via telephone at 847-307-6100 (Chicago), 972-770-5010 (Dallas) and 405-241-9462 (Oklahoma City).
Information with interviews with Plexus staff was used in the writing of the blog. Also, the websites of leading reinsurers Lloyd's, Munich Re and Swiss Re were consulted for background research.