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with other insurers. It increased the likelihood of accumulating

risks regionally and in certain lines of business. One way of

avoiding these problems was to seek reinsurance across national

borders. But this again meant that capital would flow out of

national economies, and capital at the time was a sought-after

commodity needed for keeping up with industrial and economic

development.

Founding reinsurers, rather than just founding additional

insurance companies, proved to be an efficient way of providing

additional risk capital. Reinsurers were comparatively

inexpensive to set up and run, not needing the large sales force

of direct insurers. Also, reinsurers started spreading risks more

broadly than their clients. They tended to be more

international, for one thing, and they were active in most or all

lines of business known at the time, which allowed offsetting

losses in one line with gains in another.

5. What is insurance?

Having discussed so much of insurance, it is now apparent that

Insurance, in other words, is a financial tool, which is designed

to reduce the financial impact of unforeseen events and create

financial security.

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