We know insurance companies as insurance service providers. However, insurance companies also need 'insurance companies' to avoid financial risks. This is then known as reinsurance.
Reinsurance allows insurance companies to transfer financial risk to another company (reinsurer). That way, the financial burden that must be borne by the insurance company can be minimized.
Simply put, reinsurance aims to provide protection to the assets and finances of an insurance company in order to avoid losses due to payment of claims to customers.
This can be utilized by any insurance company, whether it is engaged in providing health insurance services, life insurance, to property insurance.
Insurance Companies Need Reinsurance, Why?
There are a number of reasons why insurance companies need the role of reinsurance companies. First, it relates to the risk of a large number of claims that must be borne by the insurance company. So, reinsurers are needed so that the company's financial condition remains stable.
The second reason why insurance companies need reinsurers is that every insurance company has a cash claim reserve that must be available. This is in anticipation of the submission of claims by customers in the near future.
In this case, reinsurance plays a role in helping to “loosen up” the cash management. Thus, the quota for issuance of new insurance products is bigger.
What are the Purposes of Reinsurance?
The following are the objectives of reinsurance for insurance companies:
1. Capacity Boosting
Enlarging the capacity of insurance companies in terms of the amount of coverage.
2. Removal of Uncertainty
The second objective of reinsurance is to assist insurers in stabilizing the level of losses in a number of ways, such as eliminating the frequency of losses, when losses will occur, and how large the losses are potentially.
3. Confidence
Another goal is to increase the confidence of insurance companies in increasing the investment value.
4. Catasthrope Protection
The existence of reinsurance also aims to prevent insurance companies from experiencing large losses.
5. Spread of Risk
Finally, the existence of reinsurance aims as a mechanism for transferring risk from insurance companies to reinsurers.
What are the Types of Reinsurance?
There are 4 (four) types of reinsurance methods applicable in Indonesia, namely treaty , facultative, facultative obligatory , and pools . Here is the explanation:
1. Treaty
In practice, the treaty method requires the insurance company to transfer risk to the reinsurer (generally within a period of 12 months. This method is further divided into 2 (two) types, namely:
- Proportional
- Non-proportional
2. Facultative
The facultative method allows the insurance company to transfer part or even all of the risk to the reinsurer.
3. Facultative Obligatory
In this type, the insurance company is free to choose whether to transfer the risk to the reinsurer or not. If you want to transfer, the reinsurer must accept it with a note, the risks are in accordance with the agreement.
4. Pools
This type is an agreement between several insurance companies to place certain types of insurance. Then, cumulatively, will be placed on mutual reinsurance.
Pools method is usually used in insurance that has a high risk, such as aviation insurance.
How Does Reinsurance Work?
Just like an insurance company when providing protection to its customers, an insurance company will pay a premium to a reinsurance in order to get the benefits as chosen.
However, the premium value is certainly below the premium paid by the customer to the insurance company.
In practice, sometimes several reinsurance companies will join forces to handle reinsurance . Each will take on a different role, starting from the party determining contracts and premiums ( lead insurer ) , to managing reinsurance ( following insurer).
Sharia Reinsurance
There is also a Sharia-based reinsurance. Just like the Sharia concept in general, this product will use a sharing of risk in its services to insurance companies.
Referring to the Regulation of the Minister of Finance Number 18/PMK.010/2010 concerning the Implementation of Basic Principles for the Implementation of an Insurance Business and Reinsurance Business Using Sharia Principles, sharia-based reinsurance has the following principles:
- Have an agreement to help each other (ta'awun) and bear each other (takaful)
- Participants contribute to the tabarru 'fund
- The company acts as Tabarru's fund manager
- Holds the principles of justice, trustworthiness (trust), balance (tawazun), welfare (maslahah), and universality (syumul)
- Does not contain elements of uncertainty/obscurity (gharar), gambling (maysir), interest (riba), persecution (zhulm), bribery (risywah), immorality, and unlawful objects.
Insurance and Reinsurance Companies, What's the Difference?
At first glance, insurance and reinsurance companies have the same services. However, they both have differences, which are as follows:
1. Relationship with Customers
Reinsurance companies do not communicate directly with customers, but only work with insurance companies.
2. Customer Segmentation
The majority of insurance companies target the business to consumer (B2C) and corporate segments with the target audience being insurance companies ( business to business/ B2B).
What are the Reinsurance Companies in Indonesia?
There are many reinsurance in Indonesia. Some of them are as follows:
- PT Airline Reinsurance Indonesia Tbk.
- PT Reinsurance Indonesia Utama (Persero)
- PT Reinsurance Maipark Indonesia
- PT Reinsurance National Indonesia
- PT Tugu Reasuransi Indonesia
- PT Reinsurance Syariah Indonesia
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