What Does Reinsurance Broker Mean?
Put simply, a reinsurance broker acts just like an insurance broker. But instead of working with members of the public selling them insurance, reinsurance brokers work with insurers to sell reinsurance.
A reinsurance broker is an intermediary individual or firm who is paid a fee or commission to find and place new business on behalf of both the insured client and insurer. This can involve negotiating rates or contracts while sourcing the best-suited policies on the market.
In the case of reinsurance, the insured client is an insurance company looking to acquire protection or reinsurance from another larger insurance company for a specific risk or class of risks.
Generally, these insurers purchase reinsurance for the following reasons:
To limit liability on a specific risk.
To stabilize their losses.
To protect themselves against catastrophes.
To free up cash flow.
To offer more diverse coverage.
To increase their capacity to take on new clients..
When multiple insurance companies purchase insurance policies from the same reinsurer they share the risk and limit their own total losses in the case of a specific event or disaster. Brokers recommend policies that are the best solution and coverage for the potential loss at the most affordable premiums due to their vast knowledge of the current reinsurance market.
Insuranceopedia Explains Reinsurance Broker
The process of purchasing reinsurance can be time-consuming and very complicated, which is why many insurance companies rely on the skills of reinsurance brokers. Reinsurance brokers' specialized skills help them get the best deals possible while supporting the before and after-sales experience.
Reinsurance brokers support insurance companies in placing the risk and choosing the most appropriate reinsurer after reviewing all the relevant information about contracts and premiums.
There are several types of reinsurance policies available on the market:
Quote Share Treaty: under this arrangement, the insurer and the reinsurer share a percentage of the premiums and losses on a risk.
Surplus Treaty: this type of reinsurance contract obliges the reinsurer to insure a fixed amount on a policy (for example, $20M of a $50M liability policy).
Excess of Loss Treaty: the insurer retains the first part of a loss and cedes the rest (for example the reinsurer may be called upon to pay amounts of loss in excess of $10M).
Facultative Reinsurance: this type of contract covers all or part of a policy on a case-by-case basis. These are typically arranged for particularly large risks as one-off contracts.
Once the contracts are placed, the reinsurance broker continues to advise on and draft new contracts, collect payments and offer support with claims. They also continue to support the insured once the contract ends with reporting of liabilities and closing open claims.
These duties are only extended to insurance companies, who in turn offer advice to individual policyholders. Reinsurance brokers have no direct link to individual policyholders - in fact, most people have no idea that reinsurance is even being used on their policy.