Reinsurance is a process where insurance companies pass on a part of the risk for which the original insurer is liable. This type of insurance is basically the same as regular insurance; the main difference is that the insurer has a partner and shares benefits and premiums with another.
Reinsurance is vital in today's business world for several reasons:
- Protects against unusually large claims. The loss will not be great for any one insurer.
- Helps to avoid fluctuations in underwriting results. This step keeps a lid on the claims the insurer is expected to pay by itself.
- Spreads the risk, internationally. When a country is more prone to emergency situations and an insurer is committed heavily, spreading the risk with another helps greatly.
- The capacity of the direct insurer is increased.
In order to process reinsurance in a professional and efficient manner, several important steps need to be taken:
- Put together all of the information necessary pertaining to your agreements with other insurance companies. Make notations on the conditions you reinsure or how you will share the policy.
- Put together all the information you can gather about each policy type; then from this, formulate a plan.
- Then put together all information together needed for each individual policy. This should come from an extract file, obtained from the administration's system.
- Determine your premiums in an orderly and efficient fashion: note each policy's plan, look at treaties. Check to see how each policy will be billed to each insurance company. Then, create a bill report for each company that you plan to bill or pay. When creating this report, keep it as flexible as possible but consistent.
- Your next step will be to run reports on the data you collected. Then compare results with the month before.
Keep in mind that the process of reinsurance can be complicated and time-consuming; for there are many details to process. Purchasing a pre-made reinsurance system will help to keep the management process simpler, especially with data processing, reporting and storage.
And, if you don't have the initial success that you're seeking, don't abandon this most important process. Time is money; so invest wisely in this process. If your business is in a "high stake" mode, you might want to consider a third-party reinsurance system. In addition, obtaining a good text editor can be a great asset and help eliminate some of the stress.