Re-insurance can be defined as a circumstance under which a firm may decide to insure itself with another large insurance company against the risk that is covering.the following are the circumstances for its occurrence;
- If the no of people insuring against a specified risk is large.
- Claims arising are too high for a single firm to settle on its own.
The act of spreading risks among firms with another insurance company with which to cover specified risks whose value may be too high to be undertaken by one firm e.g. insurance of ships and aeroplanes.This is also known as co–insuranceand each firm insures only a portion of total value of risk.
The insurer who covers the largest portion of the risk is known as the leader.
Functions of a leader
- Carries out all the documentation of the cover on behalf of all the co-insurers.
- Collects the premiums from the insured and divides it among co-insurers.
- Handles the claims in the event of loss.
- Pays the insured after collecting the proportionate amounts of money from each co-insurer