Packaged risk transfer
Contracts are bundled among companies and transferred to one
(syndicate) of reinsurers.
Same as above only may pay lower reinsurance premium rates because bundling reduces transactions costs for the reinsurer.
Either government or an association of insurers can facilitate the bundling and transfer of contracts to the reinsurance market.
Pooling and transfer
Contracts are pooled within the country and/or region with only the tail risk of the pool transferred to reinsurers.
Some basis risk.
If spatial diversification opportunities exist, reinsurance premium rates will be lower than with other strategies. In the case of pool reinsurance based on traditional stop loss cover transactions costs maybe higher since the reinsurer will need to perform due diligence not only on the index, but also on the pool. In case of reinsurance based on index insurance, pool due diligence is avoided, but basis risk would be higher
Either government or an association of insurers can facilitate the risk pooling and transfer of pool tail risk to the reinsurance market.
Source: Managing Agricultural Production Risk – Innovations in Developing Countries (World
Bank)
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