Sciencelovers - By now you must have heard about insurance companies and the premiums they offer. However, you need to know that it is poss...
Definition of Insurance
Each insurance company has different types of premium packages. There are premiums related to health, education, life, vehicles, business, and property ownership. The word insurance itself comes from the word insurance which means coverage. Insurance has a main element, namely risk. The agreement in insurance is closely related to the transfer of risk.
So it can be said that insurance is an agreement between the insurer (insurance company) and the insured (customer) related to risk control that may occur in the future. So in insurance, the insured no longer thinks about the financial risk of a type of premium he chooses.
In cooperation between the insurer and the insured, the insured is willing to pay premiums regularly within a predetermined period of time. In return for the premium, the insurer is ready to bear the risk if something happens to the insured, according to the article stated in the contract.
Definition of Reinsurance
Reinsurance is an agreement between the reinsurer and the insurer (insurance company) that discusses the distribution or delegation of part or all of the insurance risk. That way, when there is a loss, the insurer does not bear all the risks. Claims submitted by the insured will be divided between the insurer and the reinsurer.
Every insurance company must have its own limits regarding the maximum number of claims that can be covered. The reinsurance company is able to increase the claim limit, if there is a risk sharing cooperation from the beginning with the insurer. In this way, the protection of the insured will be more optimal.
Example of Reinsurance by Insurance
An example of the use of proportional reinsurance is when the insurer has an agreement with the insured to deal with life problems. To share the risk, insurance and reinsurance agreed to share the risk 60:40. So from the beginning it is paid, 40% of the insured's premium will be paid to the reinsurer.
If there is a loss of life, then the claim submitted by the insured will not be reduced. 60% of the claim is borne by the insurer, and 40% is borne by the reinsurer. However, this distribution is not known by the insured. The Insured is only entitled to know that his claim is resolved.
Difference between Insurance and Reinsurance
Although both bear risk for the thing insured, insurance companies and reinsurance companies are much different. There are many things that must be done by insurance companies, it turns out that reinsurers do not need to do. The following is a major comparison of the two.
Relationship with the Insured
An insured has no line of communication at all with the reinsurer. All matters related to the premium agreement are settled directly with the insurer (the insurer). So if later there is a claim that must be requested, the insured only deals with the insurance company. The Insured is not entitled to charge anything to the reinsurer.
Meanwhile, insurers have an obligation to deal directly with the insured. Even though they have a partnership with reinsurance, the insurer has no obligation to explain the articles of cooperation they have to the insured. The insured only knows about the premium package and how to claim it.
Related Premi
An insurance company usually provides a lot of options in a premium package. This makes it easier for the insured or the customer to buy the appropriate premium, without many exceptions to this and that. In general, the insured needs an ease and practicality from purchasing the premium.
Meanwhile, reinsurance may not cover all sessions in a premium. Based on the agreement between insurance and reinsurance, the reinsurer may only cover the nominal amount of one session, or one session under certain conditions.
Branding and Advertising
Because they are not in touch with the insured at all, the reinsurer often does more work without advertising. This financial institution does not need to put up any advertisements to attract customers, because that is the duty of the insurance company. Asuradur usually prioritizes network and reputation to support its business.
Benefits of Reinsurance
The existence of reinsurance turned out to be very instrumental to the success of the insurance business. With so many things to take care of, insurance certainly needs support from reinsurance. There are several benefits of reinsurance that can encourage the economic movement of insurance companies, including the following:
Increasing Insurance Company Capacity
If the acceptance capacity of an insurance company is still low due to the inability to bear claims at a later date, then reinsurance is very helpful. Reinsurance can work together to cover some of the risk of a claim, so that insurance can have a greater acceptance without worrying about the risk.
Increasing Insurance Company Confidence
If insurance is fairly new to a particular premium area, it will take time to learn and adapt. In order to avoid losses that are too large to threaten bankruptcy, insurance cooperates with reinsurance, for example with a stop loss agreement. That way, the insurer has better confidence to explore new fields or business expansion.
Insurance Company Financial Stabilization
If the claim from the insured is very large or there is a loss that is beyond reasonable limits, then of course the financial stability of the insurance will be shaken. For this reason, cooperation with reinsurers is needed to share risks. When a loss that is too large occurs, the insurer does not bear it alone.
Those are various discussions about insurance, reinsurance, and various possible collaborations between the two. The existence of reinsurance provides more convenience for customers. By knowing about reinsurance, you know that buying premiums from insurance companies will be more secure.
