Coinsuring

Coinsuring is a practice in the insurance industry where two or more insurance companies agree to share the risk of a particular policy. This is often done when the potential payout for a claim is very large, exceeding the capacity or risk tolerance of a single insurer. Each coinsurer agrees to cover a specified percentage or portion of the total insured value.

When a claim occurs, the insured party receives payment from each coinsurer according to their agreed-upon share. The primary purpose of coinsuring is to allow insurers to underwrite larger risks than they could manage alone, thereby diversifying their exposure and preventing a single large loss from financially destabilizing one company. This is common in large commercial property insurance, marine insurance, or in situations involving high-value assets or complex liabilities.

Coinsuring agreements are documented in a coinsurance clause within the insurance policy. This clause outlines the responsibilities and proportions of each insurer involved. The insured party typically deals with a lead insurer, who often manages the policy administration and claims handling on behalf of all the coinsurers. This simplifies the process for the policyholder, who doesn't need to interact with multiple insurance companies directly for day-to-day matters.