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Retrocession Insurance Terms to Know: Spiraling

This week we have been discussing reinsurance and retrocession insurance: the act of insurance companies spreading out risk by buying insurance from each other. The concept of retrocession insurance makes sense. It lightens the burden of liability after a catastrophe and better ensures that property damage victims will get money for their claims. However, it is also easy to see how the process of insurers buying insurance from other insurers can get confusing. That’s where spiraling enters the picture.

What is spiraling?

Spiraling occurs when a reinsurance company buys reinsurance from itself. How could this absurd accident take place? Because insurance products are traded so often and so quickly, a reinsurance company may make the mistake of insuring itself. Spiraling is more likely to take place in niche insurance markets—such as marine insurance—where there are simply not very many different insurers.

What are the consequences of spiraling?

Spiraling can have serious consequences, not only for the companies involved, but also for their policyholders. If risk isn’t properly spread out among a number of insurance and reinsurance companies, there many not be enough money to pay out claims. It is important to note that even if spiraling has taken place, the original insurance company is still the entity liable for paying out your claim.

Texas Insurance Claim Attorneys

Do you have an issue with your insurance claim, or has your insurance company stated that it is in conflict with a reinsurance company? You may wish to speak with one of our residential insurance claim lawyers about your case. Call today to schedule a complimentary, confidential appointment: 888-614-7730.

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