Direct Insurance

Direct Insurance refers to an insurance arrangement where the policyholder directly enters into an insurance contract with the insurer (insurance company), and the insurer directly bears the liability for compensation or payment of insurance benefits. In foreign trade, direct insurance is commonly used for cargo transportation insurance, credit insurance, etc. The policyholder is usually the exporter, importer, or carrier. Unlike reinsurance, which involves an insurer transferring part of its underwritten risk to another insurer, direct insurance is the original risk transfer. It also differs from co-insurance, where multiple insurers share the same risk, whereas in direct insurance only one insurer bears the risk. When using direct insurance, foreign trade practitioners should note: clearly define the subject matter of insurance, insured amount, coverage, insurance period, and deductible; ensure insurable interest exists; pay premiums promptly; and in case of loss, claim directly from the insurer. The advantages of direct insurance are simple relationships and direct claims, but the insurer may have limited capacity for huge risks. Therefore, for very large risks, a combination of direct insurance and reinsurance is often used.