What is a Reinsurance Broker?

December 17, 2020, Posted by: Aaron DiCaprio

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Reinsurance Broker

In the insurance industry, there are several individuals who able to guide you to the right coverage plan. While you may have familiarity with the term insurance broker, you may not have heard of a reinsurance broker. Though the tasks do vary slightly, those who work with reinsurance don’t work directly with the public to sell policies but directly with insurers to help find the best policies for the client.

What Is Reinsurance in Simple Terms?

You can think of a reinsurance broker as an intermediary between agencies and the clients of these agencies. This third party's primary function is to source the best coverage options on the market for a particular client or need while also negotiating the best contracts or rates for the policies. In many cases, an insurance company is an insured client seeking reinsurance against specific liabilities from a more extensive or highly specialized insurance company. These insurers may be looking for reinsurance because of the following factors:

  • They want to stabilize their losses.
  • They want to limit liabilities for specific risk areas.
  • They want to increase their cash flow.
  • They want to protect the company against disasters.
  • They want to improve their capacity to handle new clients.
  • They want more diverse coverage opportunities for clients.

What Are the Two Types of Reinsurance?

The broad categories of reinsurance can be divided into two subcategories: treaty and facultative. Facultative deals with unique, high-value, or hazardous risks specific to particular individuals or companies. A hospital is a candidate for facultative coverage. Treaty coverage is categorized by broad policies that are more encompassing of general needs, such as an auto business.

One key difference between these two policies is the way risks are addressed and covered. Treaty contracts include general categories of risks that the plan will cover, and provided the occurrences fall within the policy terms, the losses are usually automatically covered until the insurance agreement is canceled. With facultative, the individual risks have to be specifically underwritten by the reinsurer, with continual evaluation of the policy against the business’s approach to the risks and implementation of safety protocols or risk management practices.

Why Should I Use a Reinsurance Broker?

These brokers have technical advice and reinsurance expertise that can be leveraged to guard against damaging financial losses. They are up-to-date on market data and intelligence that guides their advice on trends in the industry and how risks are being successfully addressed in other industries. These brokers also have better access to more national reinsurance markets for better pricing and coverage opportunities. This knowledge and these opportunities can guide clients and insurers on how to best manage their risks to be accepted for coverage.

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