Primary Insurer
What Does Primary Insurer Mean?
A primary insurer is the insurance company that sells a policy to a client and then purchases reinsurance. Since insurance companies face the risk of unforeseen losses from high-risk entities, the primary insurer transfers some of the risk to a reinsurer through a cession process and a contractual agreement. This is why the primary insurer is referred to as the “ceding company,” where the business originates.
To protect the insurance company from significant financial losses, the primary insurer retains a specified portion of the risk, while any excess is transferred to the reinsurance company.
Insuranceopedia Explains Primary Insurer
Primary insurers pay a premium to reinsurers, which can be offset by a commission the reinsurer pays to the insurer.
The primary insurer pays the reinsurance premium to secure the protection it requires. Since the primary insurer bears the costs of issuing the policy, the reinsurer provides a ceding commission to the primary insurer. As a result, the cost of reinsurance is based on the amount of risk involved.
The primary insurer is responsible for defending the insured by negotiating settlements and indemnifying policyholders up to their policy limits. It is also the primary insurer’s obligation to manage claims.
