LAW

Can Insurance Companies Also Purchase Insurance? ⚖️

Ever wondered how insurance companies manage to pay out many claims at once, e.g. after a large natural disaster? The answer: they buy insurance too! This special kind of insurance for insurers is called “reinsurance” and ensures that insurance companies will have the available finances to pay out claims. Think of it like this: if insurance is the safety net for individuals, then reinsurance is the safety net for the safety net. By sharing some (or all) of the risk with a reinsurer, an insurance company can take on more policies and protect itself from financial ruin if a major disaster strikes.

💡 Things to consider

• How Does This Work?: Let’s imagine a fictional insurance company that insures seaside homes at risk of flooding. This year, forecasts predict extreme flooding within this area, so they decide to buy reinsurance that covers claims exceeding £10 million. Just as predicted, the area becomes flooded and causes £30 million in damage. The insurance company would cover the first £10 million, and the reinsurance company would cover the remaining £20 million. Homeowners get their payouts, and no one goes bankrupt — high fives all around!
  And yes, reinsurers can get insurance too; the safety net for the safety net for the safety net.

  

  Insureres with their insurers

• How has reinsurance changed over time? Reinsurance has been around since the 14th century, when European merchants used it to protect their shipping ventures. A turning point came with 9/11, which exposed the catastrophic potential of terrorism. Previously seen as a low risk, terrorism created the largest insured loss event in history at approximately $35 billion (in 2001 dollars), spanning various sectors such as property damage, life insurance, business interruption, etc.

  In response, the insurance and reinsurance industries underwent major changes: Terrorism exclusions became standard, premiums were priced more cautiously, and risk diversification across regions and sectors became the norm. The event reshaped reinsurance, showing that even the most unlikely risks must be accounted for in a volatile world.

• The two main types of reinsurance are proportional and non-proportional.

  • Proportional reinsurance is about sharing. The insurer and reinsurer set a percentage split for premiums and claims. They both share the benefits and the risks.

    

  • Non-proportional reinsurance involves a threshold. The reinsurer will only pay losses that exceed this threshold. There will likely be an upper limit, which would mean the insurer pays anything beyond that.
    For instance, if a policy has a £1 million threshold and a £5 million coverage layer, the insurer covers the first £1 million, the reinsurer handles the next £5 million, and the insurer pays anything beyond that.

🔎 Find out more

• More on reinsurance

• YouTube talk on reinsurance

• History of reinsurance

🍒 The cherry on top

• ♾️ Breaking Maths: What if a single assumption let you duplicate a ball into two identical ones—without adding anything? This mind-bending video from Veritasium dives into Georg Cantor, the Axiom of Choice, and how math nearly fell apart over the idea that you can choose from infinite sets without rules. Perfect for fans of Maths and Logic.

• 🟣 Ancient Dye: Archaeologists have uncovered an Iron Age dye “factory” near modern-day Haifa, Israel — solving a long-standing mystery about where the prized Tyrian purple was mass-produced. Using sea snail mucus (yep, mucus), this settlement at Tel Shiqmona churned out vats of the regal purple pigment once reserved for elites across the Mediterranean. A great read if you’re into Archaeology or Ancient History!

• 🧱 Sand That Holds Up a Car?!: This Practical Engineering video dives into mechanically stabilized earth (MSE) — aka how to make dirt strong enough to hold up roads, bridges, and even cars. With simple demos (paper towels, t-shirts, and a Mazda), it shows how layering soil with reinforcement turns it into a powerful and cost-effective construction material. A fantastic watch if you’re interested in Engineering, Architecture, or Physics.

👀 Keep your eyes peeled for…

• 23rd April

  • Pembroke College Cambridge Webinar for Scottish Prospective Applicants

  • UEA English Literature Taster Webinar

• 24th April

  • St Anne’s College Oxford Vaccinology Webinar

  • UEA Media Taster Webinar

• 26th April

  • Exeter, Bath, Cardiff, Keele, Lancaster and Warwick joint conference for Year 12s

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