Risk management is one of the most indispensable tasks of any insurance company. In general, insurance companies set a maximum value beyond which they cannot commit to remaining within the standards of their statistical and budgetary forecasts.
To deal with several risks, the company subcontracts or co-contracts part of its activities with partners. The two techniques used by insurance companies are coinsurance and reinsurance.
By simple definition, co-insurance is an action allowing certain insurance companies or insurance companies to guarantee the same risk or several risks of a single clause. Sometimes the agents have difficulty in guaranteeing certain risks because of the importance of the capital to be enveloped. To appease themselves, insurers have sought a way called co-insurance.
What exactly is coinsurance?
Co-insurance allows certain agents to collectively enter into a guarantee to cover a serious threat by simultaneously limiting their contract to levels that suit them.
The way is used to ensure specialist risks and within the framework of manufacturing risks of a real impact.
The benefit of co-insurance, the agents avoid the obligation to compensate a much higher amount on their own, that is to say, that this deposit makes it possible to cover several attempts at the request of the buyer. For example, an association adopts co-insurance on all of its assets by favoring the association’s insurers to offer them transactions.
The principles of co-insurance
To fully understand the principle of co-insurance, let’s take an example: a business manager wants to study the guarantee to hide a furniture factory. After studying his plan, he estimates the capital to be covered at 60 million dollars. This excessive amount supports immovables and motion disputes.
The insurance company informs the director of the company that it is prepared to ensure fraud at the rate of 55%. This indicates that the broker can hide the potential maximum loss of 55% of the capital ($60 million).
The head of the company is obliged to find insurers to cover the remaining 85% of risks. There may be 3 co-insurers, one agrees to compensate 40% of the capital covered in the event of a claim and the other 2 35% each.
This means that insurers will use co-insurance when the risk is high and the cost of the property to be guaranteed is also high.
Materialization of co-insurance
About the materialization of co-insurance is a horizontal division of damages and can be practiced in two ways: by separate policy or collective policy.
By adopting separate policies, each participant determines his policy on the sum of the costs to be covered. Thus, each agent is obliged to put in place a policy in such a way that he must each cover the sum of the risk. The insurance contract presented by each insurer specifies the name of each participant involved
Group policies are the most common method of co-insurance. In these cases, the various agents who participate in the contract called Co insurers offer buyers a single insurance policy. This t shows different names such as the situation, the guarantees granted, the applicable rates of the different Co-insurers as well as the cost of their contract, the nature of the guarantee, that is to say, the localities and activities carried out by the company, there is also the insured capital, premiums, declarations and special clauses.
Any insurance policy covering physical assets includes a co-insurance regulation or relative rule. Its purpose is to force policyholders to maintain haughty insurance costs. Generally, coinsurance is formulated by a percentage that converts from 100% to 80%. This means that you must insure yourself up to a minimum of X% of the actual amount of your assets so as not to be penalized in the event of a loss.
Namely that the proportional rule only applies in the event of partial abandonment. For total losses, you will receive the cost of your line of insurance. Just be aware that, for temporary losses of less than $5,000 or less than 2% of the cost of deposit, the proportional rule does not apply.
Here we show you the compensation formula
The purpose of the leading insurer is to manage the contract, to represent all the co-insurers. The co-insurers will give him all the clause management tasks. The leading insurer has the job of estimating the appropriate price for the risk, declaring the bonus expiry notices. The leading company must establish the inspection, the premium executions as well as the endorsements.
The leading insurer contributes on behalf of all the co-insurers. He is the only one to sign the insurance policy with the buyer. Often, the customer will never know the other insurance points participating in the coverage of possible claims. The signatures of all the insurers trace in an agreement file recorded in the preserves of the leading company. We would like to say that Co-insurers can get rid of their participation or reduce the saved cost after indicating the administrator of the clause. In this case, they will have to contact one or more other insurance points to replace this change in outcome.
So what is reinsurance?
The principle of reinsurance is simple and basic: the reinsurer is the insurer of the insurance company. The company then transforms an insured from the reinsurer, to whom it propagates participation based on an operation of the risk that the insurance company figured.
Reinsurance allows insurance companies to Cope with exceptional claims, guarantee against the ruin of insurers who do not have the funds in case of danger, to have greater capacity and financial security, to share the risk without dividing the clientele, unlike the co-insurance process.