Definition
Retention Limit refers to the maximum financial limit that an insurance company decides it will retain or cover using its own funds for medical and hospital expenses on a single claim or across the total claims. This is critical in determining the company’s exposure to financial risk. The retention limit can vary depending on the insurance contract or the reinsurance treaties the company has entered into.
Importance
- Risk Management: Helps in the management of risks by limiting the insurer’s exposure to large claims.
- Financial Planning: Aids in financial planning and capital adequacy for insurers by clearly demarcating potential out-of-pocket spend limits on claims.
- Terms of Reinsurance: Often dictates the point at which reinsurance will kick in to cover further costs. This can significantly impact the reinsurance terms and premiums.
Governance
It is goverened by overall internal corporate policies and agreed terminologies within reinsurance treaties. Oversight may also sometimes be influenced by regulations that govern insurance practices within certain jurisdictions. Therfore, addtion of clauses on Retension Limits may be part influenced by government insurance regulations, which define bounds within insurance contracts can operate.
Helpful Documents and Regulation overviews
- For comprehensive understandning of how retensions and limits are governed, relavant sections of the Health Insurance Portability and Accountability Act (HIPAA) and The Affordable Care Act (ACA) can also be practical. Furthermore, industry guidelines issued by insurance oversight organisations or financial boards also provide generalized directives.
This highlighted section serves as a referenced interpretation and any adjustment or reevaluation of company policies concerning retenstions or coverage should only be enacted following a thorough regulatory review or consulations with reinsurance experts.
