What if we all claim

[mamongato]

I have been observing creation and subsequent blossoming of new insurance firms in Africa Borwa. My question is around how these companies manage and handle the following risk: Let us assume there is new kid on the block called Queen Life Covers, then it happens it signs up 100 people on its R1 000 000 life cover.

How do can they a situation when all 100 people die withing their acceptable cover criteria. My assumption is they will not have R100 000 000 to give to them, but I need your clarification on this too.

 

[BrianB]

They will have a reinsurance agreement that would kick in to cover the claims.

 

[agentrfr]

The insurance companies reinsure themselves with other insurance companies, normally in other parts of the world to spread the risk. It works most of the time, but whenever there is a world war then it gets complicated...

 

[mamongato]

Oh reinsurance, now this is making sense. So this means the smaller companies that just emerge if they are not underwritten by the bigger firms are a risk to clients?

 

[borga]

Oh reinsurance, now this is making sense. So this means the smaller companies that just emerge if they are not underwritten by the bigger firms are a risk to clients?

One of the case I have seen was where a local company had a reinsurance policy with another insurance company in Zurich, as such 90% of the policy was covered by Zurich and the remainder with the local company.