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Definition: Clash Reinsurance
Also called as Casualty Contingency or casualty catastrophe excess of loss, it is a reinsurance to cover loss occurrences. It is used to cover the insurance company in case two or more policies are claimed due to the same catastrophe. The insurance claim can be for two people involved in the same casualty or the same person has more policies which are to be claimed.
The catastrophe can be a hurricane, earthquake or a flood where many insured people might claim their policies.
One insurance company shares its risk by offering coverage to the other company and obtains a share of the premiums of the policies paid to the second company.
Types of Claim Reinsurance:
• Sideways Reinsurance: When the reinsured company has claims from two or more people involved in the same casualty. It is to protect the reinsurance company in this contingency
• Vertical Reinsurance: This type of reinsurance is to provide additional reinsurance limits when the vertical reinsurance is used. The claims might arise from
o Two or more claims exceeding the reinsurance in place
o Extra obligation claim
o Excess of claims in the original policy itself
Examples of reinsurance claim:
• Consider the example of a factory worker who got injured during work and claims his worker’s compensation from the insurance company. If the compensation insurer has purchased a reinsurance policy for this type of contingencies, then the contract will reimburse the insurer for the payment of the injured worker.
• In case of a hurricane at Carolina Coast, various factories have been destroyed and thousands of workers have claimed their insurance from the same insurance company. This type of claims are usually covered by a reinsurance type claim taken by the insurance company
• In some cases, the reinsurance purchased would have an aggregate cap and when exceeded, the insurance company would have to pay the claims again. This is avoided by taking additional vertical reinsurance policies that cover this type of claims also
The reinsurance policies can also extend to the business disasters such as the Madoff Ponzi Scheme which was a financial catastrophe.