Insurers do not have a problem bearing risk pertaining to your life and health. The risk pool takes care of that as the chances of all the individuals dying or falling ill at the same time is highly impossible.
Let us consider an airline Company insurers its fleet of airliners. An airline disaster could cause claims in Crores of rupees from a destroyed aircraft and the loss of life of passengers in the air and causalities on the ground.
These claims could financially cripple the Insurer. In order to avoid this risk Insurers insure these risks with another insurer and pay a premium .This is called reinsurance. Reinsurers bear the high cost of a loss due to a damage or a claim which could financially cripple the Insurer. They in turn charge a hefty premium from the insurer to bear the risk. Most of the reinsurers are Global players and they bear this risk.
You must be remembering the September 11th 2001 terror strikes in the US where planes crashed into the World trade center and the Pentagon.
The damage claims were in millions of dollars which could have crippled insurers. However they landed up crippling the reinsurers. This was a rare event and normally reinsurers do not have to settle such high claims.
Insurers are frightened of such unforeseen huge losses and insure themselves against such huge massive losses. This breeds the need for reinsurance.
The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.