The term coinsurance or coinsurance can refer to two different concepts, both related to insurance and the sharing of risk between various parties.
Various coexisting insurances
The coinsurance, by this definition, is a contract signed insurance part of the insured and elsewhere, several insurers who assume with complete independence from each other, the obligation to respond separately from the part of the risk they correspond. Ultimately, it is about the distribution of risk and insurance premiums between insurance companies, and these in turn can assign it through their automatic contracts or special reinsurance programs. Coinsurance should not be confused with reinsurance or deductible, although in some way internally they are interrelated, since part of the coverage provided by an insurer in coinsurance may, in turn, be reinsured.
It is feasible that an insurer may not be able to respond financially to the totality of a risk due to not transferring its plenary sessions and that is when the figure of coinsurance appears, by which several insurers intervene independently in the insurance.
- There are several insurers.
- The distribution of insurance companies is made by the insured, the insurance broker, or the companies themselves based on their ability to assume a specific risk.
- The loss is borne by several insurers (individually).
- There is a direct relationship between the insured (client) and the insurers.
Payment of part of a claim by the insured
In addition to the previous definition, in some countries such as Mexico, the word coinsurance is a figure of insurance Law applicable to contracts for major medical expenses.
It is defined as the percentage that corresponds to paying the insured of the loss caused by the accident, it is regularly 10%. The application of the figure of coinsurance seeks that the insured use hospitals and doctors whose collection of fees is adequate to recover health and avoid excess expenses.
Generally, the amount of the coinsurance can be agreed with the insurer under the following rule: the higher the amount of the premium, the lower the amount of the coinsurance and vice versa. Usually, the coinsurance is collected by the hospital at the time of the patient’s departure and credits the payment to the insurance company. Coinsurance and deductible may apply to a major medical expense claim. Some Insurers offer Policies with a cap on the coinsurance at a certain amount -generally $ 30,000 mxp- which allows the Insured to know with certainty how many deductibles will be paid and up to how much for coinsurance.
For all-risk policies that cover company assets, or assets in general, coinsurance is nothing more than the relationship between the insured value and the full value of the insurable interest. For example, we ensure a building for a million dollars but to do it again (at the time of the loss) costs 4 million, so we have only insured 25% of it and we have a 75% coinsurance. This implies that we are only entitled to receive from the Insurer 25% of our partial losses or the sum insured in the event of a total loss.
The concept of coinsurance, in this definition, contrasts with that of copayment in that the coinsurance is a percentage of the cost and the copayment is a fixed cost.