In every business, there is an element of risk involved. And insurance is one of the ways most business ventures chose to de-risk their businesses. It is similar to the way a person opts for the best health insurance to cover any unseen illness or accident which can hamper his financial stability. Just as individuals and businesses take the help of insurance companies to de-risk their lives and businesses, the insurance companies too de-risk their business by going the reinsurance way. It helps the insurance companies to carry the material consequences of losses in their line of business. And insurance companies carry huge risks in their businesses. So insurance companies pool the risks of large number of individuals and businesses and Reinsurance companies in turn pool in the risks of a large number of insurance companies. Reinsurance companies support the insurance companies by mitigating risks involved in calamities which do not happen under normal circumstances. They also provide the insurance companies with much needed expertise in underwriting, claims management and actuarial knowledge which in turn helps them reduce their own risks. Under normal circumstances no insurance company would need the help of a reinsurer. But when a major calamity like an earthquake happens, the casualty is much higher than anticipated and without the help of a reinsurer; the insurance company might not be in a position to honor their commitments to such a large number of claims. Putting it simply, if under normal circumstances 20 people die in a town in a year and due to a flood, 500 people died in year 鈥?no insurance company would be in a position to make good the commitment of the insurance contract 鈥?that 鈥檚 when reinsurance helps. Reinsurance is bigger in the general insurance industry more than the life insurance industry. There are more than 200 large reinsurance companies across the world some catering to very specific types of insurance companies. And yes, if you want to know how the reinsurance companies cover their risks in turn 鈥搕 he process is called retrocession! About Author: MyInsuranceClub.com is an Online Insurance Price & Features Comparison Website in India. Visitors can easily find the best life insurance policy suited for them by comparing insurance plans offered by different life insurance companies in India.
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