Understand the principle of co-insurance and reinsurance

Understand the principle of co-insurance and reinsurance

Coinsurance and reinsurance are two terms you might come across in insurance terminology. However, they remain somewhat vague. Here are some details.

What is coinsurance?

Coinsurance refers to the technique by which several insurers come together to bear the same risk together in a joint contract. It is used in particular by insurers when the risk is high and the amount of property to be guaranteed is also significant.

In short, coinsurance consists of insurers sharing the risk represented by the insured. Suddenly, in the case of the compensation of a disaster, the insurance companies do not risk putting themselves in financial danger since they share all the expenses.

Coinsurance is the sharing or spreading of risks between several parties. This may involve sharing the risks between the insured and the insurer or between two or more insurers.

If the insurance policy provides for coinsurance at 80%, the insurance company covers 80% of the risk while the insured is responsible for the rest (20% plus deductible if applicable). It is a way for the insured and the insurer to share the responsibility for the risk. It can also contribute to reducing the cost of the insurance premium, a direct consequence of reducing risk for the insurer. 

Another form of coinsurance widely used in the European insurance market is sharing risk between several insurers. Thus, a standard insurance contract is used, and the risk is shared according to the coverage percentages between the insurance companies. An insurance company is generally responsible for drawing up the insurance policy document. It becomes liable for the various terms of this document, including claims and premiums (against payment by the insurance company in charge). The percentages of risks borne by the prominent insurer and the other coinsurance companies are specified at the beginning of the insurance policy document. 

Suppose more than one insurer is involved in an insurance policy. In that case, the primary insurer is responsible for negotiating the premium, collecting it, and accounting for any tax payable on the tip. Once the claim occurs, it is the insured’s responsibility to notify the primary insurer responsible for handling claims, including settling the survey and paying it. The leading insurance company will first pay all costs related to the lawsuit, which can then recover them from the co-insurers (proportionate to their share of risk). If the amount of the loss is low, the leading insurer can settle it himself. The primary insurance company is not required to notify the co-insurers of claims, except in the event of large claims.

What is reinsurance?

You should know that insurance companies also think about insuring themselves. This process is called reinsurance. This technique allows the insurance company, which remains solely responsible vis-à-vis its policyholders, to guarantee itself with a third party for a more or less significant part of these risks.

The insurance company then itself becomes an insured of the reinsurer, to which it pays a contribution based on the calculation of the risk that the insurance company represents.

If your car insurer must compensate you and has chosen the reinsurance process, all reimbursements are not at its expense. It will itself be reimbursed in part by its reinsurer.

By Master James

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