Very simply put, retrocession insurance is the way that a group of insurance companies and reinsurance companies spread out risk so that they can successfully handle a large number of claims at the same time.
To begin, many insurance companies—especially insurance companies that deal with hurricanes, earthquakes, and other large natural disasters—buy insurance for their company. This is called reinsurance. Reinsurance can be extremely helpful if a region is struck with a powerful storm that negatively affects hundreds or thousands of properties. Instead of being stuck with the entire bill, which could easily cost millions or even billions, the insurance company is covered by reinsurance companies. Together, these companies have the ability to pay out all of their claims.
In turn, some reinsurance companies get coverage from other reinsurance companies. This is called retrocession insurance. Retrocession insurance further spreads out the liability burden in the case of a disaster.
Are reinsurance and retrocession insurance good things? For the most part, yes. Spreading out the risk associated with selling property insurance in dangerous areas prevents insurance companies from going under after a large catastrophe strikes an area filled with policyholders. In other words, it is better for homeowners. If you file an insurance claim for property damage after a large storm, the insurance company will be able to pay your claim quickly and fully even if many others are filing claims at the same time.
Do you have a question about reinsurance, retrocession insurance, or getting your claim paid after a catastrophe? A Texas insurance claim attorney may be able to help you. To learn more during a free, confidential meeting, call the Voss Law Firm today: 888-614-7730.