Cyber Risk in Reinsurance
February 12, 2025
The discipline of risk management has been evolving through the years. As a result, the process of measuring risk and assigning numerical values to them has also been evolving over the years. The earlier measures of risk were simplistic and rudimentary in nature. With the passage of time, quants have started getting increasingly involved in […]
Insurance is a tool which helps individuals protect themselves and diversify their risks. The concept of insurance is based on the fact that the risks will only affect certain individuals during a given period of time. Hence, if money is pooled by all individuals and paid out to a few, the risk can be mitigated. […]
Research has shown that the best way to get the senior managers at all levels interested in the change initiatives is by engaging them and seeking their buy-in for the change management process. Studies have proved that the managers in the upper echelons buy into the change from a strategic perspective where the accent is […]
The term ’Psychology’ has been derived from two Greek words ’Psyche’ which means life and ’logos’ which means explanation. Psychology as a social science scientifically studies the mind and behaviour, which influences our day to day lives, professional well being and our relationships with family members and society. Psychology as a social science has evolved […]
It has been researched that many leaders refrain from showing compassion at their work place. There are multiple reasons due to which they do so, discussing some of these below: Showing compassion would mean agreement with the subordinates: Many people think that being compassionate would mean that they are agreeing with whatever have been done […]
In the previous article, we have already studied the concept of layering and how it related to reinsurance policies. We are now aware that layering is used so that the risk can be comfortably placed between multiple reinsurance companies instead of a single reinsurer having to bear all the risk.
Layering is a very popular method of reinsurance and is used by almost every major reinsurance company in the world.
Hence, every student of reinsurance must have knowledge about the pros and cons of layering. In this article, we will provide details about the same.
There are several benefits that can be attributed to layering. Some of the most important benefits have been listed below:
The benefit of layering is that it creates a standardized mechanism using which the risk of one layer can be transferred from one reinsurer to the other. Such a transfer can even take place via the secondary market.
As a result, the sum assured offered to the ceding insurer would be much lower compared to their expectations. It is for this reason that reinsurance companies prefer to use layering so that the needs of the customers can be met better.
The ability to generate less premium while setting aside even less capital in the form of reserves encourages reinsurance companies to underwrite layered policies.
The process of layering also causes certain disadvantages to the ceding insurer as well as to the reinsurance company. The details of the same have been mentioned below:
This can become quite tedious from the point of view of the ceding insurer who has to undergo the entire process again and again. Also, they receive the claim payments separately from each reinsurer. It can be difficult to track such payments and ensure that the claims which have been made have been settled in a timely manner.
Ceding insurers have often complained about the lack of service provided to them by reinsurance companies. This can be fixed by setting aside a larger chunk of the premium for administrative purposes.
The bottom line is that layered insurance policies have their pros and cons. However, for most parties, the pros far outweigh the cons. This is the reason that layering is common in the industry.
Your email address will not be published. Required fields are marked *