Temporary reinsurance

By Olala Updated: 06 Mar, 2019
Temporary reinsurance or optional reinsurance is a form of reinsurance that the original insurer assigns to a reinsurance company for each service or individual insurance policy.
The reinsurance company has the right to receive or deny that service and application. The original insurance company has full discretion to decide what reinsurance for the service, at what rate, to which reinsurance company is up to them.
On the other hand, reinsurance companies have the right to receive or refuse reinsurance with a rate they deem appropriate. The original insurance company is obliged to provide the reinsurance company with all information related to the covered service. In fact, reinsurers also assess the level of service risk and decide whether or not to receive reinsurance without the full details.


Temporary re-insurance or reinsurance is optional
Advantages:
This method allows small insurance companies, with relatively limited experience, to compete to receive large services beyond their capabilities, because they can use their professional and capable expertise. capital of international reinsurance markets.
Allows the original insurance company to receive services outside of its normal scope of exploitation. Such services are mainly according to the special requirements of the customer that the original insurance company must accept to maintain its credibility.
A group of close-insured original insurance companies that are able to exchange risks are assessed as good on a temporary basis to conduct risk distribution and ensure stable revenue.
Defect
Requires a lot of time because each service must be resolved individually. The original insurance company must arrange for a temporary reinsurance prior to receiving a service, so the decision to receive insurance will be delayed until all temporary reinsurance arrangements are completed. Thus, the original insurance company is likely to yield to more powerful competitors, or receive insurance that is not adequately protected by reinsurance and sometimes losing goodwill to customers. due to delay.
The work involved in negotiating, drafting contracts and payment is very expensive and therefore reduces the profit.
Before each continuing reinsurance period, the original insurance company must repeat the entire negotiation process before discussing with its customers. Not to mention the cancellation or change may cause more unnecessary work.
The need to disclose information about insurance services may result in information leakage to competitors.

Fixed reinsurance

Fixed reinsurance, also called compulsory reinsurance , is a form of reinsurance in which the hefty company must cede to the reinsurers all the original insurance risk units agreed upon by both parties. and provisions in the contract. In contrast, reinsurers are also required to accept all risks.
Fixed reinsurance or compulsory reinsurance
Advantages:
Assisting the company to take the initiative in accepting and deciding the insurance premium for the original insurance risk without having to take the time to consult with the reinsurers, so the insurance contract will quickly be signed.
The company is protected by the reinsurers for all risks covered by the contract, so the safety of the insurance company is guaranteed.
Receiving reinsurance under a fixed contract allows the reinsurance company to receive more services than receiving a single temporary contract. Reinsurers have the ability to collect large fees, in accordance with the principle of "mass law" to help reinsurers have conditions to promote technical progress of the insurance industry by accepting new risks.
Defect:
Usually it is stable for a certain period, thus lacking flexibility before changes of the transfer company.
Because all risks have to be re-taken, on the side of the company ceding the units of risk with small insurance money still has to be repaid while their financial capacity is still capable of being covered.
If the company hires inexperience, especially negligence of signing a original insurance contract, the consequences for reinsurers are very unpredictable.

Selectable reinsurance - required

As a form of insurance, the insured company is not obliged to cede all the services that it receives, but the reinsurers are obliged to accept the services that the hefty company has entered into the agreement provided that such services are in accordance with the agreed content and terms of the reinsurance contract. The parties to the reinsurance contract choose at their discretion - absolute honesty is required to ensure benefits to reinsurers. 

Advantages:
Reinsurance companies are not obligated to cede all the services they receive. They have the option to offer partial reinsurance of liability beyond their ability to retain one or more of the reinsurers they choose, instead of giving all parts beyond their ability. It is for reinsurers.
However, the hefty company cannot take advantage of this reinsurance to choose the risks of loss of contract and keep the risks of higher safety. In order to prevent this situation from happening, the reinsurers must understand the intent of the company to cede, carefully consider the risks that the hefty company has reinsured and regularly monitor the progress of the agreement that they have signed.
Reinsured recipients are able to obtain a larger reinsurance fee and are more balanced than temporary reinsures.
Conditional reinsurance companies offer reinsurance to cover part of the surplus liability compared to their self-holdability to a single reinsurer or to some reinsurers they choose instead of having to divide all the surpluses against their self-retention capabilities for reinsurers. However, this way of re-insurance is usually only possible by offering great potential reinsurers because only they can receive high insurance values.
Defect:
Reinsurers do not have the right to refuse but the risks that reinsurers transfer to them. However, such risks must be consistent with the content and provisions of the conventional reinsurance contract.
This form is not very convenient for reinsurers, because the service source included in this contract is infrequent and the losses are very erratic. Parties to the contract must have absolute honesty to ensure reinsurers receive reasonable services.
In case the concession company has many risk units that need to be reinsured, the administrative costs for applying this form are very expensive. (Quote 123doc)