Question

Who is responsible for deciding how much reinsurance to purchase? How do these stakeholders affect the purchase of reinsurance?

Answer 1

First let us understand what actually reinsurance is and why do people take insurance.

Reinsurance is basically a process of providing protection cover to the primary insurers which are the insurance companies that provide insurance to individuals and different entities. it helps in diversifying the risk that are borne by the primary insurers and to curtail down the amount of losses being borne by thesr insurers in the event of some unforeseeable circumstances.

The reinsurers or the reinsurance companies determine the amount of reinsurance to be purchased by analysing if the investment made is worthwhile or not and helps in devising the reinsurance plan by taking into account the degree of risk and risk pricing by contemplating in advance the reinsurance needs.

The reinsurance companies, primary insurers and different entities looking for insurance are the major stakeholders affecting the purchase of reinsurance.

1. For the insurance companies the sources of income are the different entities that take up the insurance.

2. For insurance companies, the reinsurance is an expense or the cost to be incurred for covering their risk.

3.Thus, it is important to determine if the income must be greater than the cost .So mostly companies that have good business of insurance takes reinsurance as the quantum of business is large and so does the risk of incurring losses.

4. If the insurance market goes down , then it will affect the reinsurance market directly as their is low business so ultimately low risk and low income .

5. Reinsurers maintains their business by providing unhindered protection cover to the unprecedented loss making situations at the right price and fast deliverables.