Coinsurance is the sharing of the same risk by several insurance companies. Each insurer is liable for the part of the risk it has agreed to bear. This is a share of risk that the insurance companies decide to insure jointly.
Definition of coinsurance
Coinsurance is a technique consisting of the sharing of risk by several insurers. The latter come together to guarantee the same chance through a contract jointly. Coinsurance intervenes, especially when it is about high risk and when the amount of the goods insured is also essential. This technique allows insurance companies to share the risks. Thus, in the event of compensation, they share the costs. This prevents them from finding financial difficulty because of the same risk.
How coinsurance works
An individual or a company that wants to ensure their property will contact their insurance company. After evaluating these, the insurer finds that it is a significant capital that it will not be able to cover fully. Therefore, it is up to the insured to find companies that will agree to cover the rest of the uncovered capital. It may be one or more co-insurers who will then guarantee the risk.
The first insurer may also seek to associate with other partners. The insurance contract will be signed jointly with all the partners. If the first company agrees to bear 30% of the capital, the insured will have to find co-insurers who take the remaining 70%. It can be three companies, one agreeing to compensate 30% and the other two will cover 20%.
Materialization of coinsurance
A horizontal division of damages materializes coinsurance. It is practiced in two possible ways: separate policies and collective policies.
From the perspective of separate policies, each insurer establishes its policy by specifying all the amounts it intends to cover. If the insurers are unable to agree on coinsurance, the insured can resort to cumulative insurance. He can subscribe to several contracts and declare to each insurer concerned the presence of the other agreements. In the event of a risk, the compensation will be distributed in proportion to the number of contracts signed. This is a necessary precaution that avoids situations of forfeiture of balance. The law is strict on this subject, and it stipulates that insurance must not be a source of profit.
The collective police
This method is the most common in coinsurance. In this case, the insurers offer a single insurance policy to the insured. This includes all applicable information such as:
- The location and value of the insured property;
- Guarantees ;
- The rates applicable by each insurer;
- The weight and nature of the guarantee.
The contract must also specify the share of the insured capital and the corresponding premiums, and the specific clauses.
Within the framework of a collective policy, the co-insurers may appoint a leading insurer among themselves. This is the company with the highest risk participation. The purpose of the leading insurer is to manage the contract and represent all the co-insurers wherever necessary. The leading company will be the primary contact with the insured during the contract term.