What is the goal of joint reinsurance plans established by insurers?

The goal of joint reinsurance plans established by insurers is primarily to reduce the financial burden of catastrophic losses. When insurers band together in a joint reinsurance agreement, they share the risk associated with large, potentially devastating claims. This collaborative approach allows them to protect their individual balance sheets from the adverse effects of significant claims that could otherwise threaten their financial stability. By distributing the risk among multiple insurers, each company is better equipped to handle large loss events without jeopardizing its financial health or ability to pay future claims.

In contrast, increasing risk for each insurer directly contradicts the purpose of reinsurance, which is to manage and mitigate risk. Shared management may occur in some collaborative arrangements, but it is not the primary goal of a joint reinsurance plan. Similarly, while joint reinsurance plans can affect the insurance market and policy availability, eliminating the need for individual policies is not a function of reinsurance, as individual policies are still necessary to cover daily losses. Therefore, the focus of joint reinsurance is clearly on the financial and risk management benefits that come from sharing the impact of catastrophic losses among insurers.