Written by  //  June 23, 2011  //  Insurance Glossary: N-S, Insurance Terms  //  Comments Off on Reinsurance

Insurance companies need to limit the amount of exposure on any one claim or event to avoid large income fluctuations (or uncertainties) and possible insolvency (or bankruptcy). By sharing the risk with other insurance companies, reinsurance allows an individual insurance company to take on clients whose coverage would be too great a burden for one insurer to carry alone. The original insurance company, however, continues to service and honor the insurance contract.

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