Coinsurance is a mechanism that insurance companies use to share the responsibility of covering a certain risk.
In co-insurance, two or more insurance companies agree to share coverage for a certain risk. In this way, during a coincident period, each of the companies assumes only a percentage of the risk and also of the premium. Thus, for example, for a risk assessed at one million euros, three companies share their hedging responsibility in the following proportions: 30%, 45%, and 25%. The premium will also be divided into these percentages.
What about cumulative insurance?
If there is no designation and the various insurers do not want to discuss this coinsurance, this system can establish cumulative insurance. The insured has taken out several insurance contracts to cover the same risk. So that the customer avoids a total forfeiture of compensation. Company directors in a situation of cumulative insurance must quickly declare to each insurer concerned the presence of other contracts. So that the payment for the claim is distributed in proportion to the number of signed guarantees. This precaution is crucial because the law specifies that the total compensation must. In no case, exceed the value of the goods covered. The reason is that insurance cannot be a source of profit.
Reinsurance and coinsurance should not be confused. Reinsurance is considered the insurance of insurers. Coinsurance is also different from the pools established by insurers to share the guarantee of extraordinary risks such as insurance for large construction sites, risks relating to environmental pollution, atomic risks, etc. The pools represent a reinsurance system in which all the risks underwritten to the protection company are obligatorily redirected.
Group policies
Group policies are the most common method of coinsurance. In these situations, the different insurers participating in the contract called co-insurers offer customers a single insurance policy. This document indicates other designations such as the situation, the guarantees granted, the applicable rates of the various co-insurers as well as the amount of their commitment, the nature of the contract (premises and activities carried out by the covered company), the insured capital, corresponding premiums, declarations, and particular clauses.
Lead role
The co-insurers will be able to manage the collective policy by designating a leading company or a leading insurer. The leading insurer is always one of the co-insurers. The insurance company often participates in the most significant indemnification risk. This rule is not mandatory since the leading company plays a role that can also be provided by the company behind the coinsurance or the one consulted by the customer for the first time.
The objective of the leading insurer is to manage the contract and represent all the co-insurers. The latter will entrust him with all the management tasks of the contract. The leading insurer is responsible for assessing the rate applicable to the risk, sending the notices of premium expiry, and paying the share due to each co-insurer. This premium varies according to the rate by paying the taxes to the Public Treasury. The leading company is also responsible for drawing up the policy, the premium receipts, and endorsements, collecting the premium and examining the claims files, paying all the indemnities, and collecting the co-insurers share.
The leading insurer acts on behalf of all co-insurers. He is often the only one to sign the insurance policy with the client. This approach involves all co-insurers. Usually, the customer will never know the other insurance agencies involved in covering any claims. The signatures of all the insurers appear in an acceptance document saved in the archives of the leading company. It should be noted that the co-insurers can withdraw their participation. Or reduce the amount covered after having indicated to the contract manager. In this case, they will have to contact one or more other insurance agencies to replace this change in decision.
