Insurance Awareness - Reinsurance
Which of the following best explains the principle of 'Reinsurance' in the context of risk management?
Which of the following best explains the principle of 'Reinsurance' in the context of risk management?
medium Q8 of 15
Step-by-Step Solution
Step 1: Understand reinsurance principle
Reinsurance involves transferring risk from the insurer to a reinsurer to manage and protect against large or catastrophic losses.Step 2: Analyze options
Pooling of risks by policyholders to reduce individual loss describes risk pooling by policyholders, B is about government guarantees which do not apply universally, and D is direct insurance sales.Final Answer:
Transfer of risk from insurer to reinsurer to protect against large losses → Option CQuick Check:
This is the fundamental principle of reinsurance in risk management.
Quick Trick: Reinsurance = insurer’s risk transfer.
Common Mistakes:
MISTAKES- Confusing reinsurance with risk pooling or government schemes.
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