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Understanding the Major Functions of Reinsurance Companies

Reinsurance Insurance Company IconsYou may already be aware that some insurance companies buy insurance policies of their own, a process known as reinsurance. But why would an insurance company seek to insure other insurance companies in the first place? Attorney Bill Voss explains the major functions of reinsurance, as well as how the way these companies do business can affect you as their policyholder.

Top 5 Benefits of Reinsurance Companies

While the main function of a reinsurance company is to spread out risk, reinsurance companies do much more than this. If reinsurance is done properly, insurers and their customers are afforded much better services and freedom to function. Unfortunately, there are many mistakes made during the reinsurance process, so not all companies with reinsurance have the best policies.

Ideally, your insurer’s reinsurance company should:

Secure against large losses

Just like your own insurance, a reinsurer should pay promptly in the case of an unusual or widespread loss event, such as a hurricane or tornado.

Improve business offerings

When an insurance company is secure and stable, it can increase the depth and width of coverage and offer more insurance policies to its customers.

Help your insurer expand

The extra protection form a reinsurance company gives your insurer the opportunity to take the money from premiums and invest it in other markets or use profits to launch new products and services.

Act as a seal of approval

 A reinsurance company won’t take an insurance company on as a partner unless the investment is worthwhile. The reinsurance company will help the insurance company evaluate its reinsurance needs, devise an effective reinsurance plan, and analyze risks and risk pricing.

Improve services 

Reinsurance companies will also help the primary insurance company understand and coordinate its reinsurance needs. This is done by providing technology, training, organization, management, and even accounting.

Again, just because reinsurance can provide a range of benefits, not all of them will prove to be worth their premiums. When a huge loss event occurs—such as a particularly stormy season or natural disaster—it can be difficult even for reinsured companies to pay out all of the claims that they receive. In addition, a second insurer means there will be two insurance companies fighting to retain their profits. Finally, reinsurance companies may engage in retrocession that leads to spiraling, increasing the risk that an insurer will be unable to pay out claims.

If you are experiencing unfair treatment from an insurer, the insurance bad faith attorneys at the Voss Law Firm can help you fight the battles you need to fight to get the compensation you deserve from your policy. Simply fill out the contact form on this page today or order a free copy of our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.


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The Voss Law Firm, P.C. represents clients on a local, national and international basis. We proudly serve companies and individuals along the Gulf Coast and around the globe on a contingency fee basis. Our law firm collects nothing unless we recover on our client's behalf.

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