What is the primary purpose of payer reinsurance?

The primary purpose of payer reinsurance is to protect insurers against excessive claims. This type of reinsurance serves as a financial safety net, allowing insurers to mitigate the risk associated with unexpectedly high claims. When claim amounts exceed a certain threshold, the reinsurer steps in to cover the excess, ensuring that the primary insurer's financial stability is maintained.

This protection is crucial for managing risk in the insurance market, as it allows insurers to take on a manageable level of risk while continuing to offer coverage. It also fosters competition among insurers by enabling them to write more comprehensive policies without exposing themselves to disproportionate financial loss due to catastrophic claims.