Difference Between Coinsurance and Reinsurance

What is coinsurance?

It is a contract under which two or more insurance entities provide insurance coverage for the same risk.

From a technical point of view, coinsurance is one of the systems used by insurers to quantitatively homogenize the composition of their portfolio, since through it they only participate concerning certain risks in technically advisable proportions. From a legal point of view, the advantage of coinsurance over reinsurance, which would technically yield the same utility (dispersion or distribution of risks), is that in the former, each co-insurer is only liable for the participation it has assumed, while in the former In the case of reinsurance, the insurer is liable for all the risk, although, once the loss has occurred, it can recover the corresponding participation of its reinsurers.

Administratively, the coinsurance can be for a single policy, in which case all the co-insurers sign in the same policy, setting in it the percentage of participation of each of the total risk, or separate policies if each co-insurer issues its policy, guaranteeing in it their participation in the risk.

From a commercial point of view, it is frequent that the entity that obtained the operation (called the opener) pays the manager of the same the entire commission, obtaining other commissions from the respective co-insurers to whom it offers the participation in the risk, at to offset your production expenses. It is also common for such an entity to be in charge of collecting all premiums and settling all claims, then paying or charging, respectively, the corresponding amounts to the other co-insurers. 

What is meant by reinsurance?

It is a contract by which the reinsurer undertakes to repair, within the limits established by law and in the contract, the debt that arises in the reinsured’s equity as a result of the obligation assumed by the insurer as an insurer in an insurance contract. The technical instrument used by an insurance company to obtain the statistical compensation it needs, equalizing or homogenizing the risks that make up its portfolio of insured assets by assigning part of them to other entities.

In this sense, reinsurance serves to distribute the excess risks of greater volume among other insurers, allowing the direct insurer (or reinsured transferor) to operate on a mass of approximately equal risks, at least if its volume is computed with the index. loss intensity.

Also through reinsurance, it is possible to obtain participation in the set of homogeneous risks of another company and, therefore, multiply the number of equal risks of an entity. Reinsurance contracts can be classified as proportional, dealing with individual risks or risk portfolios, and non-proportional, dealing with claims, be they individual or catastrophic.