What is one goal of effective reinsurance?

One key goal of effective reinsurance is to protect against high claims that can jeopardize financial stability. Reinsurance allows insurance companies to transfer a portion of their risk to another insurer, thereby reducing the financial burden they would face in the event of unexpectedly high claims. This mechanism serves as a safety net, ensuring that the primary insurance provider can continue operations without risking insolvency due to excessive claims. By mitigating the potential impact of significant claims, reinsurance supports the overall stability and sustainability of the insurer, allowing them to manage risk more effectively.

In contrast, minimizing overall healthcare costs and enhancing patient service quality, while important objectives, are not direct goals of reinsurance itself. Reinsurance primarily focuses on risk management rather than operational cost reduction or service quality improvements. Limiting provider earnings is also not a goal of reinsurance, as this would typically be outside the scope of the reinsurance agreement, which is centered on claims and financial security.