Re-Insurance In Fire Insurance

Re-Insurance In Fire Insurance Explain deferment methods and advances of Re-insurance 7 Ans.: Meaning of reinsurance : In simple words, re-insurance means taking out another insurance policy again by the insurance.

company on the risk already insured by it. Thus, re-insurance is an ' agreement between two or more insurance companies by which the risk of loss is provisioned. The main object of re-insurance is to spread the loss between various insurance companies to reduce the burden of total loss of one company. When the amount of risk is very high which is beyond the limits of one insurer to carry, it becomes necessary to . effect re-insurance in order to spread such high risk among various insurers. definition : Prof. Lewis David has deemed re-insurance as ''the acceptance by an insurer called a re insure of all or part of the risk of loss of another insurers The main purpose of reassurance is exactly the same as that of the original contact of insurance. The acceptance of very large risks would call for heavy individual losses which may affect the insurer's financial position largely. This is because the insurer tries to encounter large risks by reducing their potential liability and by providing a greater bread of risk on the shoulders of a large number of insurers.In all types of insurance business, where the risk is high, reassurance is effected Re-insurance consists of specialized re insures who transact only reassurance business, such as Reinsurance Corporation of India.In case of reassurance there is a contact between two underwriters, the assured does not come into picture. The assured is concerned only watts original insurer and he recovers the loss from original insurer only.

  The original insurer the recovers such loss from other reissues. If the insurer fails to pay the loss, the insured has no access' to the reinsures. Thus, the insured is not involved in the process of     reassurance and there is no any kind of relationship between the insured and the reassures. The principles of insurance like utmost good faith, incurable interest, etc; are applicable to re Insurance A1l contacts of reassurance are contacts of indemnity only in which the reinsure undertakes to indemnify   the insurer.

Methods of Reassurance : Following are three important methods of reinsurance and the selection of these methods depends upon the

Practices of insurers and the scope of their resources. These three P methods are as under : 1. FACULTATIVE Reinsurance : It is the oldest method of reassurance and involves the consideration of each risk separately. The word facultative is taken from the word faculty which means 'power of doing things' or Special permission In this metro, the insurer has to make specific enquiry from the reassure, who may accept the over.

Thus, this type of reassurance is taken out for each risk separately and requires a separate contact for each individual risk. In this reassurance a slip is submitted to each reinsured giving details of the risk. Then the reinsurer initials the slip with the amount of his acceptance and this process is repeated until the whole of the risk has has been   placed. The a reinsurer then issues a take note which is stamped in order to avoid the necessity of the further issue of a formal guarantee policy In the same way, renewals are made by the issue of renewal statements on the part of the reinsurer but if any reinsurer does not wish to continue a risk after next renewal date, he must give due notice so as to enable , the insurer to find out other reassures. Under the method, the risk is spread over a wider field but the paper work and enquiries entail much (me. Similarly, there is uncertainty that each reinsurer will accept the   business or not. This method is also known as Specific reinsurance 2. Treaty Reinsurance : It is deemed as ''a formal, legally binding agreement's or ''treaty between the principal and reinsurer that the reinsurer shall accept without the option of rejecting, a specified of the excess of ANY risk over the reinsurer limit of retentions proportion of

Under this mean an agreement is entered between the insurered and the reinsurer whereby reinsurer agrees to accept all instances offered within the limits of the treaty Following are important treaty methods.

(a) Quota Share Treaty : In this method, the reinsurer undertakes to transfer a certain proportion of all risks written by the insurer. This method is very simple and widely used by new or small insurers who always need the substantial protection. the main disadvantage of this method is that the premiums are also paid on small risks. .

(b) Surplus Treaty : Under this methods an agreement is entered between the aired insurer and reassure by which the reindeer agrees to accept all instances offered within the LIMITS of the treaty Therefore, when the sum insured exceeds the retention limit, reinsurance becomes necessary.