Risk Management

Risk Management

1,200 words (2 pages) and included reference page

Part 1

  • What is the meaning of the term reinsurance?
  • Explain the reasons for reinsurance.
  • Explain the term securitization of risk.Part 2What unfair trade practices are each of the following insurance agents violating? Explain the terms that you use.
  • Agent Jones offers a client to pay a portion of the premium if the client purchases a policy.
  • Agent Peterson convinces a client to replace a life insurance policy with a new policy that adds little value.Part 3Julia owns a building worth $800,000. She insures the building for $300,000 with Company A, $400,000 with Company B, and $100,000 with Company C.┬áThere is a fire, and the building sustains $100,000 in damage.
  • How much will Julia collect in insurance?
  • How much will each company pay?
  • What insurance term describes this situation?
…………………Answer Preview………………..

The term reinsurance is a terminology, which refers to a practice where an insurance company opts to transfer all or portion of risk portfolio to a third party. It is a form of agreement, which aims at protecting the insurance company by reducing the possibility of having to pay large compensation, which the company would be unable to assume or execute. It is important to state that the reinsurance process does not affect the policyholder or the insured and the insurer remain liable for compensation (Chun, 2003). In essence, reinsurance is a way in which the insurance companies are able to share risks with third parties in case of compensation or claim benefits. The insurance company accepts to pay part of the premium to the third party in order to assume obligation that would result in case of insurance claim. It is a way of spreading risks associated with insurance claims across alternative institutions.

 

The main reason behind reinsurance is the genuine transfer of risk with the sole objective of risk mitigation. Reinsurance is effective when it comes to spreading or managing risk over time or attaining strategic business objectives. The legitimate………………….

APA
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