Individuals commonly wonder how an insurance company can take on so much risk and not go bankrupt. In areas that are more prone to natural disasters one would think that after paying out a few big storms, an insurance company could go under. Yes, this does happen sometimes, but they also rely on risk management techniques to stay afloat.
According to Investopedia, risk management is the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. It sounds complicated, but it's really just a company identifying their risks and then deciding the best ways to handle them. Among the many different things an insurance company might do to manage their risk is to pass some of it on to a reinsurance company (and that reinsurance company may distribute that even further to a retrocession insurance company). An insurance company can avoid a huge financial disaster if they in turn seek insurance from a reinsurance company. If the risk is especially large and expensive, the reinsurance company may manage their risk by seeking insurance from a retrocession insurance company.
Even when utilizing effective risk management techniques, an insurance company may still struggle and ultimately make bad decisions that hurt their clients. If you suffered a great loss that resulted in a denied claim, the Texas insurance claim lawyers at The Voss Law Firm, P.C. can dispute an insurance denial. Call today at 888-614-7730 or request a free copy of our book, Top 10 Mistakes You Cannot Afford to Make When Filing Your Insurance Claim.