You might be concerned to hear that your insurance company buys its own insurance. You might be even more concerned to hear that those insurance companies (called reinsurance companies) also buy insurance (called retrocession insurance). However, even though the act of buying insurance for insurance sounds a little like a pyramid scheme or a downward spiral, it is actually a good thing for your insurance company to buy insurance.
Simply put, selling insurance to others means taking on risk: if nothing goes wrong, insurance companies make a profit. But if something does go wrong, they have to pay out a claim. If a huge loss event takes place, such as a hurricane or tornado, an insurance company may not be able to pay out all of the claims with its profits.
Buying reinsurance and retrocession insurance means spreading out risk among several large companies. If a huge loss event takes place, single insurance companies are at risk of not being able to pay all of the claims. However, if the insurance companies have the security of several reinsurance companies, they are less likely to buckle in the weeks and months following a catastrophe.
In the aftermath of a disaster, you may extremely concerned that your insurance claim will not be paid out in its entirety or in a timely manner. Luckily, reinsurance and retrocession insurance make it more likely that the industry can handle the rush of claims after a large loss event.
Do you need the assistance of an experienced and knowledgeable Texas commercial claims attorney? Call the Voss Law Firm today for information about our legal services: 888-614-7730.