Mutual insurance is a form of protection, which is based on a specific agreement and is due to compensation for losses arising from accidental circumstances. In this case, it is carried out through the use of a special monetary fund, which is made up of contributions from participants in the process. All policyholders are members of a mutual insurance company. For the performance of certain actions they are responsible.
Basic concepts
Mutual insurance in Russia is a popular method of creating new products in this area of the business and has some characteristic features:
- Creation of a unified insurance fund, acting in the form of joint ownership of each member.
- Combining financial resources of the main participants in the process.
- Policyholders have the same rights and obligations in the process of managing the fund.
- No member of the insurance company has the right to manage the fund on their own.
- Each policyholder is liable for obligations.
Features
In mutual insurance, each person assumes the responsibility of combining their own resources with the resources of others who have identical intentions in relation to their property interests. Such a union is carried out on the basis of the agreement that all these citizens participate in the creation of a single fund, and at the same time lay their own finances. Ownership over time turns into a joint ownership right, and this gives each policyholder the opportunity to participate in insurance products.
But the liability that he bears in this case for obligations becomes joint with other insurers. Thus, in mutual insurance, the principle that manifests itself by mutual rights to the financial resources available in the fund applies.
This insurance method is another feature. It consists in the fact that the same person can act as the buyer of the service and the owner of the fund created on the basis of a mutual insurance agreement. This feature is manifested in the fact that relations between the two sides of the process can arise in a certain way.
In the case of using this type of insurance, management is carried out through those decisions that are made at the general meeting. The main responsibility lies with the insurance company.
In domestic practice, this type of service is non-profit, since all its participants do this not for profit, but to create their own insurance product.
Development in Russia
The history of the development of mutual insurance in Russia has several periods. At the first stage, formation was observed, at the second - the liquidation of all organizations involved in such activities. The third period of organization of mutual insurance societies involved the unofficial development of these societies.
Today there are prerequisites for the formation of this service in terms of all legal norms. In Russia, this type of insurance is carried out by special organizations. In the modern world, mutual insurance is insurance of property and other property interests of members of this type of association.
Interregional Society
The corporate non-profit organization Interregional Consumer Mutual Insurance Society is a voluntary association of individuals and legal entities. This is done in order to protect on the basis of reciprocity of property interests. The process is carried out through the accumulation of insurance funds and all subsidiary joint and several liability for obligations. The Interregional Mutual Insurance Company carries out its activities on the basis of a license from the Central Bank of the Russian Federation.
What is reinsurance?
Reinsurance arose as far back as the 19th century in Germany. By the middle of the century, the first companies specializing in this type of activity appeared: Cologne, Swiss, Munich reinsurance companies, and a little later - Russian. During this period, mankind has survived world wars, cataclysms, major disasters. Reinsurance is a way to ensure the financial sustainability of insurance companies. It confirmed the need and the possibility of developing this type of activity.
Mutual insurance and reinsurance are forms of protection. This is a system of specific relations between insurers under the article of the occurrence of excess risks. When they insure their risk that exceeds their own capabilities, in this situation a share of such risk is transferred to another insurer, who, in turn, undertakes, in turn, to fully pay the part incurred in case of an insured event. An operation that relates to the transfer of risk or a specific part of it is called a cession.
Firms involved in this type of process are called reinsurers and reinsurers. In this case, any participating organization has the right to engage in reinsurance only, without making direct insurance operations. Moreover, she will have the status of a professional reinsurer.
Co-insurance as a separate type of service
This is a form of mutual insurance. It is understood that two or more participants in the process, by common agreement, simultaneously take rather large risks for insurance.
When co-insured, the insured is issued a joint or separate insurance policies, based on the parts of the risk accepted by the insurers. The liability shares in this case are determined in proportion to the premium received by them. In practice, the co-insurer, participating in a smaller part, follows those conditions that are approved by the insurer, which has a large share. When co-insuring a certain object, firms sign a single agreement that contains the conditions that determine the rights and obligations of all participants in this process.
Insurance pool
One of the types of co-insurance are insurance pools, which have become widespread recently. For this type of co-insurance, pool members have a common responsibility for the risks taken. To manage the pool, its participants create a temporary bureau, which is a representative of the pool. It is not considered a legal entity. In addition, a management company specially engaged for this can conduct business of this kind of association (insurance brokers often act in this capacity).
It is important to distinguish between co-insurance and dual insurance, which is often a sign of bad faith of the insured. In the case of double insurance, the joint liability of insurers is higher than the insured value and in the event of an insured event unjust enrichment may occur.
Reinsurance Features
As the study of all areas of reinsurance shows, it should not be considered only from the point of view of individual risks. Other reasons must also be taken into account that explain the important role of reinsurance as a way of ensuring the financial stability of a firm.For example, an organization may face a risk of financial costs not only because of the threat of damage.
A cautious insurance company takes into account the risk of losses due to liability, as well as a large number of not too large risks, taking into account the occurrence of one case, for example, an earthquake, flood, hurricane and other unforeseen circumstances. It should also provide for the possibility that within one year the insurance company will be presented with a large number of claims that exceed the average level. The liability associated with such a case may be transferred to other reinsurers.
How to foresee disaster losses
Another feature of reinsurance is the ability to foresee all of the aforementioned accidents. So, the need for reinsurance is often defined as compensation for damage:
- one major risk;
- one-time risk;
- due to the occurrence of one catastrophic situation.
Benefits
The advantage of reinsurance is that as a result, stability of the results of the organization’s activities over many years is achieved. It is this that is an extremely important factor in ensuring the material stability of insurers.
Types of reinsurance contracts
There are three options for such contracts:
- Obligatory reinsurance agreement, which obliges the reinsurer to transfer certain parts of all risks that appeared at a certain time, to an individual reinsurer, which undertakes to accept them.
- Optional reinsurance. Such an agreement is concluded on a voluntary basis: the reinsurer is invited to accept the insured risks, but he is entitled to refuse such obligations.
- Optional obligatory reinsurance, when the reinsurer can transfer the risks, and they must be accepted by the other party.
Schemes for the participation of reinsurers in reinsurance activities:
- Disproportionate is a loss-of-life agreement whereby the participation interest covers losses of the reinsurer no higher than the amount specified in the agreement. It serves to protect the insurance portfolios of companies from the largest and unforeseen losses. Here, there is also a loss-of-life contract of exemption, in which losses are covered by the reinsurer to the established limit, and over such a limit by the insurer.
- Proportional, in which there are excedent and quota reinsurance.
There are optional reinsurance contracts that represent an individual transaction regarding one risk. Its distinctive feature is the fact that both parties have the opportunity to individually assess the risk: to the assignor in resolving the issue, and the assignee in deciding on the adoption of risk in a certain amount.
Obligatory reinsurance agreement, under which the assignor agrees to transfer some shares in all risks, if their total amount is higher than the insurer's own predetermined own participation. However, this agreement imposes an obligation on the reinsurer to accept shares of such risks. This type of relationship is most beneficial for the assignor, since all risks are automatically secured.
The transitional or optional-obligatory type of agreement gives the assignor the freedom to make any decisions, including in what amount and in relation to which risks they should be transferred to the assignee. At the same time, the latter is obliged to accept shares of risks under conditions that are agreed in advance. This form of contract may be unsafe and unprofitable for the reinsurer, since the reinsurer can transfer the most dangerous risks.
