Insurance Awareness - Reinsurance
What is the primary benefit for an insurer in transferring risk to a reinsurer?
What is the primary benefit for an insurer in transferring risk to a reinsurer?
medium Q6 of 15
Step-by-Step Solution
Step 1: Understand risk transfer benefits
Transferring risk to a reinsurer helps insurers reduce their exposure and protect themselves from large or catastrophic losses.Step 2: Analyze options
To increase premium rates for policyholders is incorrect as reinsurance does not aim to increase premiums. To avoid paying claims to policyholders is wrong because insurers must pay claims regardless. To regulate the insurance market is a regulatory function, not related to reinsurance.Final Answer:
To reduce the insurer's risk exposure and protect against large losses → Option BQuick Check:
Risk sharing with reinsurers stabilizes insurer finances.
Quick Trick: Reinsurance = risk reduction, not premium increase.
Common Mistakes:
MISTAKES- Thinking reinsurance helps avoid claims or regulate market.
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