Coinsurance

The word coinsurance covers two distinct things that should not be confused. In its most common sense in large-risk insurance, coinsurance denotes the horizontal sharing of a single risk among several insurers, each taking a share, or quota, of premiums and losses, on one and the same policy. One of them, the lead insurer, manages the contract and coordinates the others. This mechanism spreads a risk too heavy for a single insurer. It differs from reinsurance, which sits behind the primary insurer: coinsurance works directly at the primary level. In a second sense, present above all in personal insurance and in contracts modeled on US or UK practice, coinsurance denotes the fraction of a loss that the insured bears itself, expressed as a percentage, beyond the deductible. This proportional participation aims, like the deductible, to keep the insured interested in controlling the risk and to limit moral hazard. The context generally resolves the ambiguity: the first sense concerns the structure of the risk, the second its sharing with the insured.