I can explain this because I worked for an insurance company for 4 years. Standard insurance is the insurer promises to cover losses that the insured names. It may be that a policy caps a single loss, say $100,000. And then sets aside money to be available should a covered loss occur. . . . Say the coverage is for fire, and the actual lo…
I can explain this because I worked for an insurance company for 4 years. Standard insurance is the insurer promises to cover losses that the insured names. It may be that a policy caps a single loss, say $100,000. And then sets aside money to be available should a covered loss occur. . . . Say the coverage is for fire, and the actual loss is greater than $100,000 - so much so as to endanger the financial security of the insurance company. When such a situation is found to be possible, the insurance company buys an insurance policy with a reinsurer (of which there are several), Now, if the insurance company has to cover a customer loss of, say, $200,000 the company gets the extra $100,000 from the reinsurer.
Now that I read this, I'm not sure I explained it very well. Insurance companies agree to cover losses in certain amounts, then set aside those amounts (invested, and likely subject to a high intereste rate). If a loss occurs and they have to pay more to cover the loss, they get the money from a reinsurer, which preserves their initial investment.
I can explain this because I worked for an insurance company for 4 years. Standard insurance is the insurer promises to cover losses that the insured names. It may be that a policy caps a single loss, say $100,000. And then sets aside money to be available should a covered loss occur. . . . Say the coverage is for fire, and the actual loss is greater than $100,000 - so much so as to endanger the financial security of the insurance company. When such a situation is found to be possible, the insurance company buys an insurance policy with a reinsurer (of which there are several), Now, if the insurance company has to cover a customer loss of, say, $200,000 the company gets the extra $100,000 from the reinsurer.
Now that I read this, I'm not sure I explained it very well. Insurance companies agree to cover losses in certain amounts, then set aside those amounts (invested, and likely subject to a high intereste rate). If a loss occurs and they have to pay more to cover the loss, they get the money from a reinsurer, which preserves their initial investment.