Overview

coinsurance


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The sharing of an insurance risk between several insurers. An insurer may find a particular risk too large to accept because the potential losses may be out of proportion to their claims funds. Rather than turning the insurance away, the insurer can offer to split the risk with a number of other insurers, each of whom would be asked to cover a percentage of the risk in return for the same percentage of the premium. The policyholder deals only with the first or leading insurer, who issues all the documents, collects all the premiums, and distributes shares to the others involved. A coinsurance policy includes a schedule of all the insurers involved and shows the percentage of the risk each one is accepting.

A policyholder can also become involved in coinsurance. In this case, a reduction of the premium by an agreed percentage is given, in return for an acceptance by the policyholder that all payments of claims are reduced by the same proportion.

Subjects: Financial Institutions and Services.


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