Coinsurance

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Coinsurance is an insurance-related term that often describes a splitting or spreading of risk among multiple parties.

In the United States In the US insurance market, coinsurance refers to the joint assumption of risk between the insurer and the insured. In title insurance it also means the sharing of risks between two or more title insurance companies.

As related to Health Insurance Coinsurance is expressed as a percentage or pair of percentages generally with the insurer's portion stated first. The maximum percentage the insured will be responsible for is generally no more than 50%. Coinsurance indicates how an insurer and an insured will share the costs of a bill that exceeds the insurance policy's deductible up to the policy's stop loss order. Once the insured's out-of-pocket expenses equal the stop loss the insurer will assume responsibility for 100% of any additional costs.

As related to Property Insurance Coinsurance is a penalty imposed on the insured by the insurance carrier for under reporting the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported. As an example:

A building valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. It suffers a $200,000 loss. The insured would recover $750,000 ÷ (.80 × 1,000,000) × 200,000 = $187,500 (less any deductible).

In this example the underreporting penalty would be $12,500.

The most commonly issued coinsurance percentage would be 80% but can be as high as 100%. The latter would impose the greatest penalty for under reporting. For this reason, it is vital that values of property are accurately reported and updated annually to reflect inflation and other increases in cost.

As related to Title Insurance Owner's title insurance policy forms of the American Land Title Association created between 1987 and late 2006, contain coinsurance clauses. For partial losses, they require the insured carry a percentage of the risk of loss in two circumstances. The first is if the insured did not insure its title for at least 80 percent of its market value at the time the policy was issued. In this case, the insurer will pay only 80 percent of the loss. The second is when improvements constructed on the property after the policy is issued increase the property's value by at least 20 percent above the amount of the policy. In this case, the insurer will pay a percentage of the claim equal to the ratio of 120 percent of the amount of insurance purchased divided by the sum of the amount of insurance and the cost of the improvements.See, e.g., Conditions and Stipulations No. 7(b) of the 1992 ALTA Owner's Policy.

Coinsurance is also used among U.S. domestic title insurers in a manner similar to that described below for the international insurance market.

Internationally In the international insurance market, coinsurance refers to the joint assumption of risk between various insurers.

Coinsurance is generally widely used in the European insurance market. In this context, a common insurance contract is used and the risk is shared based on percentages between the insurance companies. Often, one insurance company will lead. When leading the insurance company will be responsible for administering various aspects of the insurance policy, such as premium, any claims and the insurance documents. In this situation, a charge is levied (termed Lead Office commission).

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See also

Copay