Who are Reinsurance Brokers? - Their Compensation and Services
We now know that a reinsurance contract is a contract between an insurance company and a reinsurance company. However, up until now, we have been assuming that the reinsurance company directly deals with their customers i.e. the insurance company. However, this is generally not the case. In a large number of cases, insurance companies deal with reinsurance companies by using the services of a specialized middleman known as reinsurance brokers. In this article, we will have a closer look at what reinsurance brokers are as well as the services that they provide.
Who are Reinsurance Brokers?
The process of reinsurance can be incredibly complex. It is not like buying individual policies where only a very small number of options exist. Insurance companies tend to have large and complex risks on their balance sheets and there is definitely more than one way using which such risks can be covered.
Reinsurance brokers are experts at finding out the best and cheapest way to insure complex risks. Hence, many insurance companies decide to employ their services so that they can benefit from their professional experience.
Compensation of Reinsurance Brokers
Reinsurance brokers earn their revenues either in the form of a commission or in the form of a fixed fee. Sometimes the structure is a combination of the two. This means that there is a minimum fixed fee paid for reinsurance business provided to a certain amount and then incremental rates of commission are offered to encourage reinsurance brokers to place their business with the same company.
Traditionally, the reinsurance brokerage is paid out of the premium paid by the insurance company to the reinsurer. This means that the reinsurer has control over what percentage they pay out as a commission.
In the past few years, many insurance companies pay a fee or commission to the reinsurance broker on the condition that they will not charge any direct or indirect compensation from the company which is actually providing the reinsurance service.
Services Provided by Reinsurance Brokers
Reinsurance brokers are preferred by insurance companies since they provide a wide variety of services. Some of the services provided by the brokers have been listed below:
The fact of the matter is that reinsurance brokers are significant players in the reinsurance industry. They control a large part of the industry because of the fact that the services provided to them are considered to be valuable by a large section of the reinsurance industry.
- Benefits of Reinsurance
- Key Differences Between Insurance and Reinsurance
- How Inflation Impacts Reinsurance
Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.