Ceded Reinsurance Leverage

Insurance companies take on a lot of risk by selling policies. Yeah, monthly premiums are completely ridiculous, but have you seen a hospital bill? The going rate for a doctor uttering, “say ah” is about five grand. So, we have reinsurance.

In order to avoid massive claims costs, insurance companies cede some of their risk by selling it off to other insurance companies, and then, of course, they pay them some of the premiums they are getting from their policies.

So the next time your insurance premiums send you into a downward spiral of fear and loathing, keep in mind they are also just trying to figure out how to spend less money.