What is the main function of reinsurance in the insurance market?

The main function of reinsurance is to make insurance more affordable by sharing risk. Reinsurance involves one insurance company transferring a portion of its risk to another insurance company. By doing so, insurers can protect themselves against significant losses stemming from large claims or an accumulation of losses due to catastrophic events. This risk-sharing mechanism helps stabilize the insurance market by ensuring insurers can maintain sufficient reserves to cover claims, ultimately allowing them to offer more competitive premiums to their policyholders. In this way, reinsurance plays a crucial role in enhancing the overall capacity and security of the insurance industry, promoting affordability for consumers.

The other options do not accurately capture the primary role of reinsurance. Redistributing wealth among policyholders is a function of insurance in general, not specifically reinsurance. While reinsurance does help insurers manage risks, it does not completely eliminate all risks. Additionally, reinsurance does not provide direct services to consumers; that is the role of primary insurers who deal directly with policyholders.