Page 21 - West Virgina 811 Magazine 2020 Issue 4

We’re All In This
By Virginia Reames The Policy Center Jackson, MS
out of claims money really quick in a disaster.
So since payment for the losses are kind of spread all over the world, no one company goes bankrupt in a disaster (OK states’ Insurance Commissions are also responsible to make sure insurance companies are funded properly – but that’s a whole other story!) – the risk is spread.
Reinsurance companies charge fees – and they decide what kind of exposure they want to have. Maybe they don’t want to write on the West Coast anymore – or on the Atlantic or Gulf Coast anymore. Then you have to get a different company to cover a company’s losses – at a higher fee. (Remember how your rates go up if you have a claim??)
And then guess what?
Insurance costs more. Rates go up. The more storms in Japan or Gulfport, the more reinsurance pays out; the more they pay out, the more they charge. Eventually it comes back to you and me. And of course, we don’t want to hear that – we’ll just go get a different insurance agent, company – whatever it takes.
Yeah, well, reinsurers – those guys
who make sure your claim is paid in
a disaster? They have upped what
they charge your company – and the company may eat part of the increase, but it passes some, if not all on to you and me. While they spread out the risk, they also spread out the costs.
And, just think about it, this is the
only way insurance can possibly work. Everyone picks up a small piece of whatever happens. It’s teamwork, in its own way.
As if you haven’t already noticed, 2020 has been a
crazy year for everything, and insurance has been affected worldwide. All those employees out
of work mean much lower premiums (income) for such coverages as General Liability and Workers Compensation- even though the carriers’ costs of operation have not come down accordingly. In an unprecedented move, auto carriers even issued credits to policyholders due to fewer miles driven.
Unfortunately, claims have gone through the roof - devastating fires in the western half of the country, storm after storm in the south and east, COVID claims for Business Income as well as COVID Workers Comp claims. The list keeps growing...
Even though flood is always excluded (unless there is a specific flood policy
in place), the record setting Atlantic hurricane season has handed insurance companies record property losses from winds. And wind is also a contributing factor to the unthinkable fires all across our western states, with hundreds
and hundreds of homes and business burned to the ground.
Insurance will help put most of these folks back on their feet.
What happens is something called “reinsurance”. These companies operate in the “background” so to speak
and they are insurance companies’ insurance companies. Yes, they “insure” the insurance companies. In other words, reinsurance companies pick
up the losses beyond a certain set amount – much like what we know as a “deductible” (Of course, those numbers are a lot higher than deductibles!) Not
thousands, but millions of dollars.
An insurance company may
pay, say, the first $5 million, after which reinsurance takes over for the balance of the losses. And just like
your homeowners’ company has rules in order to cover you... for example, must be near other homes, near a water source, etc....reinsurance companies also have “rules” which your insurance company must comply with. (Types
of policy that they can’t write, for example.)
So, yes, your insurance company (personal or business) has an insurance company that makes rules what the company can write; it also charges your insurance company a premium for this coverage.
And – nope, not done yet – reinsurance companies also have other reinsurance companies with which they share the risks (one of the operative principles
of insurance in the first place – Spread the Risk) – who also make rules and charge premiums. In this way, wildfires destroying half the homes in the west are paid for by reinsurance companies all over the world. Yes, world.
Where there are thousands and thousands of insurance companies, there are only a very few hundred reinsurance companies – and they operate worldwide.
So insurance companies that you and I know, charge us premiums in order to make us whole if anything happens, they pay reinsurance companies to make sure they can make you and me whole if something happens! But for this process, your company could run
2020, Issue 4 West Virginia 811 • 19