Page 273 - Ebook health insurance IC27

Sashi Publications

Important Points to Remember

The concept of insurance is based on the law of law of large numbers and the geographical
spread of risks. This is because a certain unfavourable event
like storm, flood, typhoon may not a strike at the same time
at all the places. So if the risk is properly spread the
probability of loss borne by a particular insurance company
becomes limited.

Though the insurance companies have good retention
capacity but in case if the catastrophic strikes the whole reserves of the company may
be wiped out and the company may become insolvent.

So in order to reduce the impact of any one event the insurance company insures
itself with another reinsurance company. This not only helps in equitable spread of
risk but also increases the capacity of the insurer to accept larger risks.

In reinsurance the insurers usually retains the risk up to a limit and after that transfers the
excess business to the reinsurers. The original insurer shares a portion of the premium
with the insurer. When there is a claim that the reinsurer shares the losses with the
insurer.

Reinsurance business is a truly global business. There are specialist reinsurance
companies who have expertise in writing reinsurance business globally. For example
Munich re and Swiss re are the two leading reinsurance companies in the world.
In India general Insurance Corporation is a national reinsurer.

In India all insurance companies must compulsorily insure a portion of their risk with
General Insurance Corporation.

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