The insurer-reinsurer relationship needs special attention in the event of a natural catastrophe, according to a new white paper from GE Insurance Solutions.
What tends to complicate matters, the study reports, is that primary insurers and reinsurers often have different interests. In the wake of a hurricane, for example, a primary company's first objective is to investigate and pay claims.
A reinsurer of necessity takes a much different view of events following a catastrophe. First of all, it wants to make sure it isn't placed in a tenuous position due to sub-standard claims handling by its cedant, or worse, jeopardized by deliberate efforts to pass on losses that could have been avoided.
David Newkirk, Associate General Counsel of GE Insurance Solutions, said: "Some fundamental but often overlooked truths emerge in the immediate days after a large-scale disaster.
"First, catastrophic events are not business as normal, and require more communication between primary and reinsurer rather than less.
"Second, the process is a zero sum transaction; dollars borne by primary carriers are not borne by reinsurers and vice versa.
"Third, the process works as intended when neither side of the transaction attempts to 'game' the other.
"Fourth, reinsurers are not without recourse if a primary insurer acts improperly. After the loss, the primary insurer can be held to a minimum standard of care -- usually read as proper and businesslike handling of claims in good faith. Before the payment of the loss by the primary insurer, the reinsurer often has some right to associate in the claim."
