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Clash Reinsurance: Definition & Meaning

Updated: February 6, 2023

Insurance policies are designed to help protect you if an unfortunate circumstance occurs. There can often be times when insurance will help offset certain costs so you don’t have to pay out-of-pocket. It can make payments more affordable for those that are insured. 

And within different insurance policies, there can also be types of extended reinsurance coverage. One of these types includes clash reinsurance. To help, we put together this guide that will cover what it is, how it works, and some of the main benefits. Keep reading to learn more!

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    • Clash reinsurance is a type of coverage that helps protect the insurer if a single event leads to excessive claims. 
    • Clash reinsurance helps to reduce and mitigate large-scale payouts. These can often come from things like a financial distorter, corporate disaster, or natural disaster. 
    • Many different scenarios can lead to clashes, ultimately resulting in large claims after a single coverable event happens.

    What Is Clash Reinsurance? 

    Clash reinsurance is a specific type of extended reinsurance coverage. It’s designed to help protect you from a single event that leads to excessive loss claims. There’s no perfect strategy for this, however, as there can be many scenarios where this happens. 

    For example, clash reinsurance can help after a single coverable event sees clashes result in excessive claims. This can be for things like corporate disasters, financial disasters, or even natural disasters. 

    Most primary insurance companies will purchase clash reinsurance for an extra level of protection and security. As well, ceded reinsurance can also cover a proportionate amount of the clash coverage risks that could arise. 

    When this happens, primary insurers will have to coordinate with more than one ceded reinsurer to get the coverage required. Ultimately, clash reinsurance coverage helps reduce the potential of a maximum payout for an insurer. And this happens if a single insurable event leads to more than one claim that’s in excess of the insured premium. 

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    Clash Reinsurance Scenarios 

    Typically, there are two primary types of clash reinsurance scenarios. And when these scenarios happen, clash reinsurance will include multiple claims of the same kind. Yet, this type of reinsurance can also get used if a primary insurer decides to insure more than one element of a single event. 

    Insurance companies will often look to take out clash coverage if there’s a possibility of a single event resulting in more than one claim to the primary insurer. For example, let’s say that a policyholder lives in an area where there’s a likelihood of hurricane damage. Clash reinsurance can get used when approving insurance for multiple property or casualty policies. 

    There can also be some other catastrophic events where class reinsurance can come in handy. These can include earthquake coverage and coverage for fire and flooding. When a geographic area has a high risk for these types of natural disasters, clash reinsurance can be more common. 

    When these situations happen, insurers take proper precautions to protect themselves. This is since, for example, a single policyholder could make multiple claims. And when a situation like this happens regularly within an insurance industry, it can lead to an excessively high payout from the insurer. 

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    How to Mitigate Risk With Clash Reinsurance 

    Insurers can help spread the possible risk of any underwriting policies. They do this by assigning certain levels of claim payouts to other insurance companies to cover. The primary company that wrote the original policy is considered the ceding company. 

    Any secondary company that ends up assuming the potential risk is considered the ceding reinsurer. And in some cases, there can often be multiple ceding reinsurers. When this happens, they share a prorated share of any premiums that need to be paid out. 

    But at the end of the day, using clash reinsurance is part of a bigger, overall risk management strategy. This allows primary insurers to target their maximum liabilities and generate the highest profits from policy premiums. 

    It works effectively because the primary insurer pays a small premium to another reinsurance company. When they do this, the reinsurance company provides the assurance that any potential liabilities won’t exceed a specified target level. Because if they go above this level it becomes more difficult to repay the premiums while earning a profit. 


    Clash reinsurance is a form of extended insurance coverage. Its primary role is to help protect an insurer from a single event that could lead to excessively high claim amounts. And there can be a few scenarios where this happens. 

    For example, having clash reinsurance can play a big role in areas that are prone to certain natural catastrophes. These can include flooding, tornadoes, and earthquakes, for example. 

    Essentially, it’s an extra level of coverage for insurers to gain some added security and protection by limiting the catastrophe risk. By doing this, they can ensure that the maximum payout they might need to make is set or capped at a specific level in case of catastrophic risk. 

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    Clash Insurance FAQs

    What Is a Clash Loss?

    A clash loss is a type of disaster scenario where more than one line of insurance is impacted by the losses at the same time. This can result in claims that are excessively large and can negatively impact the financials of insurers. 

    What Are Two Types of Reinsurance?

    In most cases, reinsurance can be divided into two categories. The first is a treaty category and the second is a facultative category. Treaties often cover a wide range of policies and direct claims.

    What Is the Disadvantage of Reinsurance?

    The primary disadvantage of reinsurance is that purchasing it itself can be costly. It all depends on the overall risk an insurer might face and weigh whether or not reinsurance is worth the cost.

    What Is Risk In Reinsurance?

    Risk in reinsurance relates to a ceding company having the inability to obtain insurance from a reinsurer. This is most important to consider if they can’t obtain it at an appropriate cost and at the right time.


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