Policy Safety

An important question to ask yourself when signing up for insurance is: what happens to my policy if the insurance company goes bankrupt?

As is the case with most important questions, the answer is yet another question: who is the re-insurance company behind the scenes; or does your insurance company underwrite all or most of the policies themselves?

The reinsurance business is one of the largest and oldest industries in the global economy.  It is one way or another involved in everyone’s lives, and almost no one knows about it.

A reinsurance company is essentially insurance for the insurance companies. They are the ones calculating the mortality rates and determining the cost of cover.  Some of the best statisticians in the world in the reinsurance business.

However, they are not in the business of determining the risk of one person dying, or insuring someone for 500,000 or even a million dollars.  Their job is to determine how many people per 100,000 policyholders will die each year.  Thanks to what is referred to as “the law of large numbers”, the larger the set of policyholders, the easier it is to predict the mortality rates.

This is not only the case for expat insurance. The reinsurance companies are closely connected with typical domestic insurance companies as well.

The structure is similar to how you as a retail customer would apply for a mortgage with a small local bank.  Often the bank is not lending you $500,000 of their own money. Instead, they will borrow $50 Million from a larger regional or central bank, and then give out smaller $500,000 loans to one hundred families. Likewise, an insurance company would for example insure $50 Million worth of risk with a large re-insurance company, and then turn around and insure small $500,000 policies to one hundred families.

What does this mean for me as a policyholder?

Expat life insurance policies are typically administrated and serviced by smaller companies.  This can be cause for concern at first glance. However, this should be expected, as the expat community is a fraction of a percent of the total population.  It should come as no surprise that an expat insurance company is not over 100 years old with an office at the end of your street, as you may come to expect with a domestic insurer.

Accordingly, it is important for you to confirm who the re-insurer is behind the expat insurance company.  There are some ultra-low-cost options floating around the internet, but they are often mostly or entirely underwritten by the small expat insurance company themselves. Instead, if the business is structured properly, there should be a top-tier A+ rated re-insurance company taking up the risk of your policy should anything unexpected happen.

Here is a list of the largest and most respected re-insurers of the world:

1. Swiss Re

2. Munich Re

3. Hannover Re

4. SCOR

5. Berkshire Hathaway

As long as your policy is backed by one of these companies, you can rest assured that if something happens to you, a large company with a  long history and track record will be the one responsible for making the lump sum death benefit payment to your family.