Definition
Coinsurance
Coinsurance is the sharing of a single large risk among two or more insurers, each covering a stated proportion of the sum insured and claims.
For very large commercial risks, several insurers may jointly underwrite the policy, with a lead insurer issuing the document and the others (co-insurers) participating for agreed shares. Each insurer pays its proportionate part of any claim. This spreads a peak risk horizontally across insurers.
Coinsurance differs from reinsurance, which is a back-to-back transfer from one insurer to a reinsurer. In health insurance the same word can also mean the percentage of a claim the policyholder shares, similar to co-payment, so context matters.
Related terms
- ReinsuranceReinsurance is insurance for insurers, where a reinsurer assumes part of the risk an insurer has underwritten in exchange for a share of the premium.
- Pooling of RiskPooling of risk is the core insurance mechanism whereby premiums from many insured parties are pooled to pay the losses of the unfortunate few.
- Co-PaymentCo-payment is a clause requiring the policyholder to bear a fixed percentage of every admissible health claim, with the insurer paying the rest.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.