Reinsurance as Governance: Governmental Risk Management Pools as a Case Study in the Governance Role Played by Reinsurance Institutions

Scholars have eloquently detailed the “Insurance as Governance” concept, the potential capacity for reinsurer regulatory influence on insurers, and the many aspects under which these theories may arise. This Article takes the next step in analyzing the complex reinsurer-insurer relationship through empirical research into how carriers are actually influenced by reinsurers, and what effect this has on the parties. As a case study in the governance role played by reinsurance institutions, this Article organizes survey interview responses of senior officials in the governmental entity self-insured risk management pool sector into four distinct discussion areas: (i) how reinsurers influence pools in general and in the key areas of underwriting, claims, and finance/solvency; (ii) the duty of utmost good faith and its effect; (iii) the level to which pools afford accommodation to reinsurers; and (iv) whether reinsurer influence varies based on pool circumstances, or external factors. While analysis of the data collected showed varying degrees of regulation or governance by reinsurers, the Article concludes that not only does a form of reinsurance influence or ‘governance’ clearly exist in the largely unregulated world of self-insured pools, whether characterized as direct, indirect, or regulatory in nature, but also that the governance effect is an open and recognized influence that is accepted by the pools