Could What You Don’t Know About Reinsurance Bankrupt Your Business’

Many of today’s most well-informed insurance professionals do not possess a basic understanding of the reinsur-ance industry, according to reinsurance expert Andy Barile. Independent agents must in-crease their knowledge of the reinsurance marketplace in order to compete in the hardening market and strenuous conditions of today’s insurance landscape.

“Agents who practice the attitude that they don’t care about reinsurance—they are just working on commission—may need to reevaluate their position,” Barile said.

Barile is the author of “Reinsurance: A Practical Guide,” a comprehensive white paper now available online at InsuranceJournal.com in The Library section. The paper is targeted at the agent, and describes the forms of reinsurance-pro-rata and excess of loss, helping the reader to understand not only the mechanics of the reinsurance agreement but how each agreement performs its necessary function. The reader will be acquainted with an overall view of the reinsurance market and is introduced to the thinking behind the design of a comprehensive reinsurance program for an insurer.

“Although the reinsurance market represents a comparatively small share of the overall insurance market, its importance should not be undermined,” Barile writes. “By providing almost all insurance companies with the ability to write larger insurance risks, reinsurance plays a significant part in the overall insurance market.

When the reinsurance market drastically cuts back due to adverse underwriting conditions, the entire insurance industry suffers in the form of serious capacity crunches. The ability to have a viable insurance market rests with the strength of the reinsurance market.”

Currently, the strength of both the insurance and reinsurance markets are being tested with the catastrophic losses of Sept. 11. These events accelerate the already hardening market, resulting in more difficulties for agents trying to find markets.

As the market hardens and agents potentially lose more business, they should consider forming their own captive insurance company to keep a share of the business, according to Barile. “The Agent-Owned Captive Insurance Company: How Agents Profit from a Hard Market” is the companion white paper to “Reinsurance: A Practical Guide” and is also available in The Library at InsuranceJournal.com.

“Two factors: the cost of insurance dramatically rising, and the void in the traditional insurance marketplace, can prompt the decision ‘to go agent-owned captive,'” Barile writes. “Captive insurance companies are a sophisticated business decision and reaction to the insurance industry’s underwriting philosophy, and consequently, during the hard market cycle, will continue to grow. It is the hard market cycle that drives the captive insurance company climate.”

The white paper analyzes the many aspects of the agent-owned captive insurance company concept, including feasibility, tax and legal considerations, offshore insurance management, securing reinsurance protection, financial statements and audits, structuring manuscript insurance policies, getting good financial ratings, and structuring the board of directors.

A thorough knowledge of reinsurance and agent-owned captives can give agents the advantage they need to compete in the hardening market.

“Reinsurance is not a difficult business to understand once one has mastered the workings of the individual reinsurance agreements and the functions they can perform,” Barile concluded.

What: “The Agent-Owned Captive Insurance Company: How Agents Profit from a Hard Market” and “Reinsurance: A Practical Guide”
Why: To educate agents about these crucial aspects of the marketplace.
Where: www.InsuranceJournal.com, click on The Library.
How Much: $150 per white paper, $275 for the set, MasterCard, Visa, AMEX accepted.

Topics Carriers Agencies Reinsurance Market