What is a BORDEREAU?
A BORDEREAU is a special report that insurance companies make. It shows the history of an insurance policy. The report lists all the losses and how much the insurance company had to pay out. It also shows how much money the person buying the insurance paid to the insurance company. This amount is called the PREMIUM.
Why BORDEREAU reports are important
Insurance companies don’t like losing money. They need to charge the right PREMIUM so they can make a profit. If an insurance policy has a lot of losses, the insurance company knows it is risky. They will charge a higher PREMIUM to the person buying that insurance.
This is where the BORDEREAU comes in handy. The insurance company that sold the policy can show the BORDEREAU report to a REINSURER. A REINSURER is another company that helps share the risk.
How BORDEREAUX help set PREMIUMS
The REINSURER looks at the BORDEREAU very carefully. They see how many losses there were and how big they were. This helps the REINSURER decide how risky that insurance policy is.
The REINSURER uses the BORDEREAU to set rates
If the BORDEREAU shows a lot of losses, the REINSURER knows the policy is risky. They will charge the insurance company a high rate to share that risk. But if the BORDEREAU shows few losses, the REINSURER knows it is a safer policy. They will charge the insurance company a lower rate.
The insurance company then uses those rates to set the PREMIUMS they charge to the people buying insurance from them. If the REINSURER charges high rates, the PREMIUM will be high. If the REINSURER charges low rates, the PREMIUM can be lower too.
What information is in a BORDEREAU?
A BORDEREAU usually has a lot of detail about the insurance policy. Here are the key things you will see in a typical BORDEREAU report:
Policy details
The BORDEREAU will show what kind of insurance policy it is. Maybe it is car insurance, house insurance, or insurance for a business. It will have the policy number so you know exactly which policy the report is talking about.
Dates
You will see the date the policy started and when it ends. This is important because the BORDEREAU only shows the history for that period of time. Losses that happened before or after those dates won’t be in the report.
Losses
This is the most important part. The BORDEREAU lists every loss that happened during the dates of the policy. For each loss, it will show the date it happened and how much money the insurance company paid out. Some losses are small, like a cracked windshield on a car. But some are big, like when a house burns down.
Premiums
The BORDEREAU also shows how much PREMIUM was paid for the policy. This is the money the person buying the insurance has to pay to the insurance company. The REINSURER compares the premiums to the losses. Lots of losses with small premiums is not a good sign. It means the policy is very risky.
BORDEREAUX help the insurance business
Insurance companies do a lot of work with BORDEREAUX. Here are some of the main ways they help the insurance business:
Setting fair rates
As we saw, BORDEREAUX help set the rates for insurance policies. This is important to make sure the rates are fair for everyone. People with risky policies pay more. People with safer policies pay less. This helps spread the risk.
Tracking trends
Insurance companies and REINSURERS look at lots of BORDEREAUX to spot trends. Maybe they see that certain types of policies always have high losses. Or maybe they notice that policies from a certain area are less risky than they thought. Spotting these trends helps insurance companies make smart choices.
Making deals
When an insurance company wants to work with a REINSURER, they show them BORDEREAUX. The REINSURER uses them to decide if they want to share the risk on those policies. The BORDEREAUX help them make a deal that both sides think is fair.
BORDEREAUX are a key part of insurance
Folks outside the insurance business may not hear about BORDEREAUX much. But they are a super important tool. They help keep the whole insurance system running smoothly.
Prices would be all over the place without them
Imagine if BORDEREAUX didn’t exist. Insurance companies would have to guess how risky a policy is. They might charge way too much or way too little. Folks would get upset about unfair prices. The insurance business would be chaos!
They help honest folks
BORDEREAUX also help make sure everyone is being treated fairly. Insurance companies can’t just say a policy is risky if it really isn’t. They have to show the proof in the BORDEREAU. This keeps prices fair for customers who don’t have many losses.
More data leads to smarter insurance
As insurance companies and REINSURERS collect more BORDEREAUX, they keep learning. They can use fancy computer models to study all that data. This helps them get even better at setting fair rates and spotting risky policies. So BORDEREAUX are making insurance smarter all the time.
