Quota sharing refers to an insurance arrangement in which multiple insurers share the revenue and liabilities associated with insurance policies. The portion or percentage of revenues and liabilities assumed by in insurer is referred herein to as a “quota share”. Quota sharing has been used in reinsurance to reduce the risk portfolios of policies pose to individual primary insurers. For example, a reinsurer, in return for half the premiums received for a portfolio of policies, may agree to reimburse the primary insurer for half the costs arising from claims related to any of the policies in the portfolio.
In other situations, reinsurers have broken down portfolios of policies into segments and have agreed to different quota shares for different segments of the portfolios. In both of these cases, however, the primary insurer is fully liable to the insured for all claims. As far as the customer is concerned, there is only a single insurer.
In other instances, two primary insurers have entered into relationships in which they agree to take on fixed quota shares for an entire book of business. Such relationships lack the flexibility of varying the number of insurers participating in a given policy or the ability to assign quota shares to each policy based on characteristics of the particular policies, insurers, or customers.
One challenge facing certain members of the insurance industry is a shortage of capacity. In order to take on new business, insurers need to maintain sufficient capital to handle potential losses. Lack of capacity leads to inefficiencies in the industry due to duplicative administration costs arising from customers seeking multiple tiers of insurance to fulfill their insurance needs.
Other insurers may have extra capacity with which they want to diversify their exposure without becoming subject matter experts in a particular industry. In addition, other capital holders outside of the insurance industry could contribute their capital to the insurance industry, but lack the expertise, systems, and/or desire to administer insurance policies.
Thus, a need exists in the art for systems and methods that would allow insurers to increase their capacity while keeping administration costs low and retaining flexibility in the liabilities they undertake.
USPTO Backgrounds
USPTO Backgrounds