Reinsurance

Reinsurance
When the unexpected happens such as the September 11 tragedy of the twin towers, insurance companies are overwhelmed by claims which they have no way of paying and are thus forced into bankruptcy! This is where reinsurance comes in handy; the insurance company will insure itself against such extraordinary situations, which they may not be able to handle. But the extent of the tragedy was such that many small reinsurance agencies were forced into bankruptcy! State or federal governments have to create programs to assume responsibility for the bulk of these claims.
Basics of Reinsurance:
Reinsurance refers to the way one insurance company agrees, for a certain premium paid, to take responsibility and reimburse another insurer against all or part of the losses. The company seeking insurance is termed as the ceding insurer and the one offering a cover is called a reinsure. This arrangement makes sure that no insurance entity faces a financial burden that it has no means to repay. Reinsurance can be purchased for the life or for a particular period such as for a year etc.
Insurance companies in general go for aggregate stop-loss reinsurance or excess-of-loss reinsurance. When the aggregate losses for a group are well above some expected level, the insurance carrier would not have set a premium high enough to cover the losses. That is when aggregate stop-loss reinsurance is useful for them. Companies that have a self-insurance health plan as well as insurance companies use excess-of-loss reinsurance when the expenses of an individual exceeded certain set limits.
Before companies go for reinsurance they have to carefully analyze if they need reinsurance, what type of reinsurance is appropriate for them, the level of reinsurance needed, and who to get it from. They need reinsurance in case of natural calamities such as tsunamis, floods, tornado, hurricanes, fire, earthquake, or man made tragedy like September 11 strike of the twin towers. They may use it to even out claim patterns as they may peak unexpectedly at times. It also helps insurance companies absorb higher losses as well as issue more policies. Ceding companies may assume greater risk than is possible considering their size, offering policyholders larger limits of coverage than possible with its own capital. Risk transfer is the main reason why several insurance companies opt for reinsurance.
Reinsurance reduces the capital needed to provide coverage, helps increase surplus as it reduces the amount of net liability. Insurance companies function better, knowing that they are covered, in case the unthinkable happens and the companies face a multitude of claims at the same time. Since the September 11 tragedy reinsurance has assumed a greater significance as also reinsurance companies are seeking ways to protect themselves from facing bankruptcy as many reinsurance firms did due to the tragedy.
There are firms that offer new business with their services and products to help them function better.
Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
Business Owners all across the country are joining "The Community of Small Business Owners” to receive and provide strategies, insight, tips, support and more on starting, managing, growing, and selling their businesses. As a member, you will have access to true Millionaire Business Owners who will provide strategies and tips from their real-life experiences.
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Types Of Reinsurance Policies

When an insurance company insures itself it is called as reinsurance, where by it shares the risk of loss with another company. Insurance companies need reinsurance, when they face the danger of having to pay a multitude of claims at the same time and hence have no option but to face bankruptcy, where as if they have reinsured they are protected to a certain extent. Event like the September 11 attack of the twin towers have caused the closure of several small reinsurance agencies, hence the significance of reinsurance for an insurance company is tremendous.
Types of Reinsurance:
There are two kinds of reinsurances, treaty reinsurance and facultative reinsurance. Treaty Reinsurance: This kind of reinsurance requires that the reinsurer will assume part or all of a ceding company’s responsibility for certain sections or classes of business in accordance with the terms of the policy. It is an obligatory contract as the ceding company has to cede the business and the reinsurer is obliged to assume the business as per the treaty. It is the preferred type of reinsurance when groups of homogenous risks are considered.
Facultative Reinsurance: This kind of reinsurance is used while considering a particular underlying risk of an individual contract. It is the reinsurance of all or part of a single policy after the terms and conditions have been negotiated. It reduces the ceding company’s exposure to risk from an individual policy. It is non- obligatory.
In another way, reinsurance is classified as proportional and non-proportional reinsurances. Proportional Reinsurances: The two companies share the premium as well as risk. The reinsurer usually pays a ceding commission.
Pro-Rata Reinsurance: It is a classification based on the way the two companies share the risk. The cedent and the reinsurer share a pre decided percentage of the premium and losses. It is used widely as it provides surplus protection. There are two types of pro-rata reinsurance, quota share and surplus share.
Quota Share Pro-Rata Reinsurance: The primary insurer cedes a fixed percentage of premiums and loses for every risk accepted.
Surplus Share Pro-Rata Reinsurance: It is different in that not every risk is ceded but only those that exceed certain predetermined amounts.
Non-Proportional Reinsurance: As the name suggests it is not proportional and the reinsurer only responds if the loss suffered by the insurer exceeds a certain amount.
Excess of Loss: It covers a single risk or a certain type of business. Catastrophe reinsurance is a type of excess of loss reinsurance. It provides the captive with a great deal of flexibility. Stop Loss Reinsurance: It covers the whole account and is also known as excessive loss ratio reinsurance.
These are the various types of reinsurances. There are firms that offer their services as well as their products to help new business start up flourish and succeed.
Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
Business Owners all across the country are joining "The Community of Small Business Owners” to receive and provide strategies, insight, tips, support and more on starting, managing, growing, and selling their businesses. As a member, you will have access to true Millionaire Business Owners who will provide strategies and tips from their real-life experiences.
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Forced Place Insurance

Forced place insurance refers to insurance taken out by a bank or creditor on uninsured debtor’s behalf on a property placed as collateral. In case the property is damaged, funding is available to repair it. This type of insurance is most common with flood insurance; the flood insurance regulations of each agency provide notification procedures that should be followed. Forced place insurance can also be purchased for other hazards also.
Guidelines:• Forced place hazard/flood insurance is general liability insurance for residential and commercial properties and foreclosed properties. It can also cover vacant properties, mobile homes, town houses and condominiums.• Forced place insurance is a proven hazard insurance program. It has been designed specifically for mortgage lenders and services.• It provides insurance cover to protect the mortgage collateral against fire and such like property hazards. However, it is most common with flood insurance.Avoiding Lawsuits:• The power to force place should be included in the contract note when taking out the mortgage. This will save you a lot of trouble later and prevent lawsuits against lenders placing insurance. The powers and obligations should be spelt out clearly in the loan contract note at the outset. • If the lender has force placed insurance, do not pass on the charge to the customer that is greater than the actual cost of the insurance. It amounts to retaining a commission, which is liable for litigation.• If a lender force places hazard insurance, the policy and disclosure letter should be made known to state.• Insurance procured by the lender for whatever reason and that is not reflected in lender’s record, is also a strong case for later litigation.• There are laws regulating force placed insurance in Connecticut, New Mexico, Florida, New York, Hawaii, Tennessee, Maryland, Texas and Mississippi.
Insurance cover for fire handling for vacant and foreclosed properties is very expensive and can create servicing burden. Loans made on properties located in federally designated flood zones too prove to be expensive and cause difficulty to bank’s loan servicing department. The federal flood tracking regulations for these types of loans are now imposed on the lender, thus increasing the mortgage premium considerably.
Solution Offered by FSIA, Inc. The firm offers a Forced Placed Property/Liability/Flood program that claims to provide maximum protection with the least hassles. The program has some outstanding features that include: • Instant binding authority for occupied and vacant properties, residential or commercial• Competitive rates and no minimum premium or deposits• Flexible monthly billing• Flood zone determinations.• Flood insurance quoting and placement programs.• Flood insurance tracking.Forced place insurance is essential for a bank or lender on an uninsured debtor’s behalf, to ensure that funding is available in the event of damage to the property. Ensure that the legal requirements are complied with to avoid litigation later.
Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
Business Owners all across the country are joining "The Community of Small Business Owners” to receive and provide strategies, insight, tips, support and more on starting, managing, growing, and selling their businesses. As a member, you will have access to true Millionaire Business Owners who will provide strategies and tips from their real-life experiences.
Article Source: http://EzineArticles.com/?expert=Alexander_Gordon