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How does reinsurance work?

The principle of reinsurance

Reinsurance is a rather amusing concept because it consists of an insurance company insuring itself. Insurance seems so essential that even insurance companies need to insure themselves. As a general rule, it must be said that the values ​​of money in modern societies have “exploded,” and now an insurer can find himself ensuring a company for exorbitant amounts. Reinsurance, therefore, allows insurers to be able to provide a risk for extreme amounts.

How does reinsurance work?

The insurer enters into a relationship with a reinsurer to transfer part of the risk contracted with a client. In this case, the insurer must pay an insurance premium to the reinsurer. This premium will also be calculated according to the risk. Like us, the insurer becomes an ordinary customer who must take out insurance to guarantee a chance that he thinks he cannot cover on his own. The treatment is the same, and your insurer, who is in business with a reinsurer, will have to proceed the same way as when you take out an insurance contract.

Your insurer buys a guarantee from the reinsurer and pays him a premium to transfer part of the risk to him. Thus, if the threat for which your insurer insures you materialize, he will not have to pay the total amount of the reimbursements. Like any insured, in the event of a claim, your insurer will file a request with the reinsurer to be reimbursed for part of the damage. Thus the reinsurer will compensate the insurer, who will refund you with, on the one hand, his funds and, on the other hand, the money of the reinsurer. You should know that there are several forms of reinsurance, just to complicate things a little more.

From reinsurance to an international mutual aid system

The reinsurance system seems to be taking over coinsurance simply because the size of the risks is increasing. Reinsurance allows insurance companies to fulfill their primary role: to ensure the risk, however extensive and costly it may be. It, therefore, seems that it is preferable for an insurance company to use reinsurance rather than to associate with a competitor within the framework of coinsurance.

Now that coinsurance or reinsurance have practically no more secrets for you, you will be able to understand what happens during a natural disaster with an international dimension. Natural disasters are unpredictable and can leave an entire nation in a situation bordering on chaos. After all, everyone has their problems, and if a hurricane destroys a city in the United States, is it France’s problem? Some will think that it is up to the United States to settle the damage, while others think of international solidarity. But in reality, we don’t care what you believe because anyway, without knowing it, you are paying for global disasters.

Due to globalization or globalization, which is increasing every day a little more, most insurance companies are reinsured. When a loss occurs in a country, even a distant one, hundreds of companies and, therefore, reinsurance companies are involved and must be called upon to reimburse the damage. The premiums of these reinsurance companies come from different insurance companies without distinction of nationality. This is why it can be said that when an earthquake occurs in Japan, the Japanese government will not have to reimburse the damage alone with only Japanese insurers. It is also the contributions of policyholders worldwide that will be used to return part of the claim.

Your insurer rarely talks to you about reinsurance and the international system of solidarity it generates. It’s already complicated enough to fully understand how insurance works on a small scale. Still, it’s good to know that by ensuring ourselves, we are participating in international mutual aid whether we like it or not.

Note that the international solidarity generated by reinsurance does not apply to all world nations. This is only valid for developed countries where insurance is widespread. Thus for Haiti, which was the victim of a violent earthquake in 2010, it will not be necessary to count on reinsurance to aid the disaster victims because insurance is not significantly developed in this country. In this case, it will be required to depend more on the outstanding generosity of the donors.

Conclusion:

Coinsurance or reinsurance, in both cases, is a question of solidarity. Coinsurance is more of a partnership between insurance companies. In the context of reinsurance, it is a matter of solidarity. The insurance companies set up international solidarity on the backs of the insured.

The concept is excellent, but we would like insurers to tell us about the reinsurance system more often. Eventually, if the functioning of reinsurance could be financed a little less by the insured and a little more by the insurers, solidarity would take on its whole meaning!

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