What does Collateralization of Cash Flow Programs mean? Read on to discover the definition & meaning of the term Collateralization of Cash Flow Programs - to help you better understand the language used in insurance policies.
Collateralization of Cash Flow Programs
Under cash flow programs (e.g., retrospectively rated plans), substantial portions of the ultimate premium for coverage are not due until the insurer has actually paid claims. Therefore, the insurer is assuming a credit risk (in addition to an insurance risk). This creates the need for collateralization of such programs. Additionally, cash flow programs must be collateralized as a result of statutory requirements (i.e., virtually all states require organizations self-insuring their workers compensation exposures to purchase bonds securing these obligations).
We hope the you have a better understanding of the meaning of Collateralization of Cash Flow Programs.