Understanding Reinsurer-Insured Relationship

 
Reinsurance, as defined by experts and the courts, is the insurance coverage for insurance companies provided in the form of a contract of indemnity rather than a liability contract. It’s an extension of insurance for reliable back-up coverage. A direct insurer first pays the loss suffered by the insured and then seeks reimbursement from its reinsurer.
 
So, what is the relationship between the reinsurer and the insured? Their relationship should not be treated as that of an insurer-insured. Between the reinsurer and the insured, there exists no contractual relationship. With this said, the insured cannot file a claim against a reinsurer. The direct relationship lies between the reinsurer and the reinsured. Looking at this scenario, there are 3 parties involved but is not necessarily a Tripartism. So, if the insured suffers a loss, it must look to its own insurer for payment of any claims and not to the reinsurer. Generally, the identity and existence of the reinsurer are unknown to the insured but depending on the insurance program, the reinsurance may have a significant impact on the insured when losses arise. If the reinsurance fails to pay out or becomes insolvent, the direct insurer may have difficulty responding to claims of the insured if it ceded most of the risk to its reinsurance program. This is why it’s important to pick the right direct insurer and ask if any reinsurance program is tied to it. Frequently Captive Insurance programs need and include reinsurance. In fact, the Captive Insurance Company, becomes the first reinsurer behind the direct insurance company issuing the policy to the insured.
 
To know more about Reinsurance and excess insurance, call MPR-Fintra, Inc. – business insurance Florida, U.S., International. Visit www.mprfintra.com