Working Cover

Example

“The regional auto insurer purchased working cover reinsurance to help manage the steady flow of collision and comprehensive claims that occur in their normal course of business.”

Memory Tip

Working cover 'works' all the time - it covers the everyday losses that keep insurance companies busy working on claims.

Why It Matters

Working cover helps insurance companies maintain stable financial results by sharing the burden of routine claims with reinsurers. This allows insurers to write more policies and enter new markets while maintaining adequate capital reserves, ultimately providing more insurance options and competitive pricing for consumers.

Common Misconception

People often confuse working cover with excess reinsurance, thinking it only applies to large losses. In reality, working cover shares in everyday, smaller losses from the first dollar, while excess coverage only kicks in after losses exceed a specific threshold. Additionally, some think working cover is more expensive, when it actually provides more predictable cost sharing for routine business operations.

In Practice

An insurance company has a 25% quota share working cover arrangement with a reinsurer. When they pay $1 million in auto claims during a month, the reinsurer immediately pays back $250,000 (25% of total claims). The reinsurer also receives 25% of the premiums collected. If the insurer collects $2 million in monthly premiums, they send $500,000 to the reinsurer, netting $1.75 million in premiums while only paying $750,000 in claims, improving their cash flow and risk management.

Etymology

The term comes from reinsurance terminology where 'working' refers to coverage that is regularly used or 'works' frequently, contrasting with excess coverage that rarely activates.

Common Misspellings

Related Terms

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