Why reinsurance is the unsung hero of consumer protection

BD Digital Insurance

Reinsurance is a safeguard for companies, allowing them to share and manage risks they take on when covering a client. PHOTO | SHUTTERSTOCK

In the world of insurance, there's a powerful yet often unseen force that plays a pivotal role in securing consumers’ financial wellbeing: reinsurance. At its core, it is a safeguard for companies, allowing them to share and manage risks they take on when covering a client. It's this layer of security that upholds the integrity of insurance policies, translating into more reliable and robust protection.

Reinsurance is emerging as a critical tool for Africa’s insurance representing not only a strategic enhancement for firms, but also signalling a new era of financial security and empowerment for millions of people.

With reinsurance, companies are now better equipped to handle large-scale claims and offer more diverse and affordable insurance products. In the African insurance landscape, characterised by economic volatility, regulatory diversity, and climatic risks, reinsurance can be an asset for driving stability and growth.

This impact extends directly to individual consumers, manifesting in several tangible and significant ways. Firstly, it enhances the reliability of insurance companies. When insurers are backed by reinsurance, they possess a more robust capacity to handle large-scale claims. For the policyholder, this means greater assurance that their claims will be honoured, especially in the face of catastrophic events or widespread claims scenarios. Such assurance is crucial in building and maintaining trust between the consumer and insurer.

While there are cases of insurers refusing claim payouts, these instances represent a minority overshadowed by those settled efficiently.

With robust reinsurance backing, insurance companies not only have enhanced financial capacity to honour claims, even in challenging times, they also enjoy operational flexibility.

This support enables quicker, often less bureaucratic claim settlements, ensuring operational continuity for insurers — metaphorically 'keeping the lights on'.

Reinsurance also helps keep insurance prices stable by spreading out the risk among many companies, which makes it easier for insurers to handle the cost of claims. In African countries prone to extreme weather events, such as floods or storms, reinsurance assists companies in managing the surge in claims resulting from weather-related damages. By doing so, reinsurance prevents sudden and significant hikes in insurance premiums after these major events. This ensures that insurance remains affordable for consumers.

Another key benefit for consumers is the broadening of insurance coverage options. Reinsurance enables insurers to offer a wider range of products and coverages, some of which might be unfeasible without the risk-spreading mechanism that reinsurance provides.

For consumers, this means access to policies that are more closely tailored to their specific needs and circumstances. Whether it's coverage for agricultural risks, property in areas prone to natural disasters, or specialised personal insurance products, reinsurance plays a pivotal role in the availability and diversity of these offerings.

By incorporating these mechanisms, African insurers not only elevate their market standing but also significantly contribute to the economic and social welfare of their policyholders.

The writer is the group executive director of Continental Reinsurance.

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