While buying health insurance plans, or Mediclaim policies, we are so ecstatic about getting insurance, that we forget it is an investment, and all investments have some factor of risk. Many insurance companies may then have to face the brunt of this risk, resulting in them shutting down, or having to let a number of employees go so that they can continue to do business. However, word of mouth can be truly harmful and a company may no longer get clients once they make a mistake and risk somebody's money. Because of the risks involved in investing, and even insuring, reinsurance companies have emerged in a big way. Apart from simply transferring the risk, reinsurance can also increase the predictability of an insurance company's results. This is possible because the reinsurance absorbs larger losses, and so the amount of capital needed to provide coverage is reduced.
There are many different types of reinsurance.
1. It could be proportional, in which case one or more reinsurer's will simply take a stated percentage of each policy that the insurer provides. The reinsurer will thus receive that percentage of premiums, or will have to pay that percentage of claims if necessary.
2. Reinsurance could also be non-proportional. Here, the reinsurer is only required to be paid if the insurer suffers a total claim more than a stated amount in a given time period. This is known as retention or priority.
3. Risks attaching basis, losses occurring basis and claims-made basis are the other types of reinsurance seen. All of these transactions or dealings are carried out with the help of contracts that generally cover more than one policy.
4. Apart from this, reinsurance can also be purchased one a per policy basis, and this is known as facultative reinsurance.
Insurance companies may sometimes want to sell policies, or offer insurance in areas where they may not have a license to do so. For example, a company may want to offer insurance to a multinational company and cover liability risks in different countries around the world. To be able o do this, they can find a local insurer to issue policies covering the risks in those countries and then enter into a reinsurance contract with them. This is known as fronting, and in the event of a loss, the policyholder would file a claim under the local insurance policy, and the local company would pay the claim, and then be reimbursed under the reinsurance contract. Many companies offering Mediclaim in India, or accidental insurance are now entering into reinsurance contracts, as it helps to diversify and lessen the risk, thereby making the company seem stronger to the public and getting them more clients.
Reinsurance is new concept rising in health insurance industry now days. Get detailed information about reinsurance, mediclaim, accidental insurance and health insurance plan in this post.
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