Double Insurance or Re-insurance

Question 1

Double insurance/ Dual insurance

Answer 1

a. ) it is lawful to obtain “double insurance”, and the insured can make claim to both insurers in the event of a loss because both are liable under the respective policies.
b. ) the insured, however, cannot profit i.e., cannot recover more than the loss suffered, from this arrangement because the insurers are legally bound only to share the actual loss in the same proportion they share the total premium.
c. ) The double Insurance is also called “dual insurance”

Question 2

Reinsurance

Answer 2

a. ) Reinsurance is insurance that is purchased by an insurance company (the ceding company) from one or more insurance companies (the reinsurer) directly through a broker as a means of risk management, sometimes in practice including tax mitigation and other reasons.
b. )the ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of claims incurred by the ceding company.
c. )the reinsurer is paid a “reinsurance premium” by the ceding company, which issues insurance policies to its own policyholders.

Question 3

the reinsurer may be either a specialist reinsurance company, which only undertakes reinsurance business or another insurance company

Answer 3

For example: assume an insurer sells 1,000 policies, each with a Rs. 1 lakh on each policy limit. theoretically, the insurer could lose 1 lakh on each policy– totaling up to Rs. 10 crores. it may be better to pass some risk to a reinsurer as this will reduce the ceding company’s exposure to risk.

Question 4

there are two basic methods of reinsurance:

Answer 4

1) Facultative Reinsurance
2) Treaty Reinsurance
a. )Proportional
b. ) Non-Proportional

Question 5

1.) Facultative Reinsurance:

Answer 5

a. ) Facultative Reinsurance, which is negotiated separately for each insurance policy that is reinsured.
b. )Facultative reinsurance is normally purchased by ceding companies for individual risks not covered, or insufficiently covered, by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual risks.
c. )Underwriting expense, and in particular personnel costs, are higher for such business because each risk is individually underwritten and administered.
d. )As they can separately evaluate each risk reinsured, the reinsurer’s underwriter can price the contract to more accurately reflect the risks involved.
e. )Ultimately, a facultative certificate is issued by the reinsurance company to the ceding company reinsuring that one policy.

Question 6

2)Treaty Reinsurance

Answer 6

a. )Treaty reinsurance means that the ceding company and the reinsurer negotiate and execute a reinsurance contract.
b. )the reinsurer than covers the specified share of more than one insurance policy issued by the ceding company, which come within the scope of that contract.
c. )the reinsurance contract may oblige the reinsurer to accept reinsurance of all contracts within the scope (obligatory reinsurance), or it may allow the insurer to choose which risks it wants to cede, with the reinsurer to accept such risks (facultative obligatory reinsurance)
d. )Ultimately, a treaty issued by the reinsurance company to the ceding company reinsuring more than one policy.

Question 7

there are two main types of treaty reinsurance-

Answer 7

a. ) Proportional: the reinsurer’s share of the risk is defined for each separate policy
b. )Non-proportional: the reinsurer’s liability is based on the aggregate claims incurred by the ceding office.

Question 8

Distinction between Reinsurance and Double insurance

Answer 8

Re-Insurance
When the insurance company insures the risk with some other insurance company, it is called Re-insurance. The reinsurance may be for the full amount of the policy or for a part of it. In the case of loss, the first company will get compensation from the second company. The insured will be concerned only with the company from which it purchased an insurance policy. Re-insurances is between insurance companies only.

Double Insurance
Double insurance means purchasing more than one policy for the same subject. A person may get two or more policies on his life. He can claim the amount of all these policies. The implications of double insurance are different in fire and marine insurance. When a person purchases two ore more policies for his property, he cannot claim the same amount as that of loss from different companies. He will be able to claim only total loss from one or more companies. The loss will be contributed by the insurance companies in proportion to the policies issued by them.