What is Follow The Settlements?
A legal provision in reinsurance contracts that obligates reinsurers to honor settlements made by insurers.
Definition
Understanding 'follow the settlements' in insurance is crucial for both insurers and reinsurers. This legal provision ensures that reinsurers honor settlements made by insurers, reducing the risk of disputes and legal battles. By exploring its significance, real-world examples, and implications, this article delves into the complexities of 'follow the settlements,' shedding light on its role in risk management within the insurance industry.
Key Points
Clarification of Responsibilities
The provision clarifies the responsibilities of reinsurers in honoring settlements made by the ceding party.
Impact on Risk Management
Incorporating 'follow the settlements' clauses helps insurers manage risks associated with claim settlements more effectively.
Legal Binding Nature
'Follow the settlements' clauses are legally binding, ensuring that settlements made in good faith are honored.
Examples
Real Estate Insurance Case Study
An insurance company specializing in real estate invokes 'follow the settlements' to seek reimbursement from a reinsurer for claims related to structural defects and tenant disputes.
Frequently Asked Questions
What is the significance of 'follow the settlements' in reinsurance contracts?
'Follow the settlements' clauses clarify reinsurers' obligations to honor settlements made by insurers, contributing to efficient claims resolution and reducing disputes.
How do 'follow the settlements' provisions impact insurers?
These provisions reassure insurers that their settlement decisions will be respected by reinsurers, facilitating smoother claims handling.
What considerations should reinsurers take into account regarding 'follow the settlements'?
Reinsurers must assess the risks of blindly following insurers' decisions, especially in cases of potential fraud or improper claims handling.
Related Terms
Compliance Policies
A compliance program is a set of internal policies and procedures designed to ensure a company’s adherence to laws, rules, and regulations while safeguarding its reputation.
Negative Feedback
Negative feedback is a system that counters or moderates initial inputs, creating a stabilizing effect in various fields, including finance.
Euroequity
Euroequity refers to the practice of issuing new stock simultaneously in multiple international markets during an initial public offering (IPO).
Back To Back Deductible
A back-to-back deductible consolidates the deductible obligation across multiple insurance policy layers into a single amount for a covered loss.
Click And Mortar
Click and mortar is a business model that combines both online and offline operations, offering customers the benefits of digital convenience and traditional in-person services.
Elasticity
Elasticity in economics measures how changes in price or other variables affect the behavior of buyers and sellers.
