Reviewed by Sep 30, 2020| Updated on
A coinsurer is one of the parties that provide the policyholder or the policy in question with additional insurance. A coinsurer along with other coinsurers provides partial coverage for the policyholder.
Coinsurers are employed usually when the amount concerned with the policy to too substantial to be covered by a single insurer.
In order to diversify the risk associated with a claim that is too large to be handled by an insurer, coinsurers help the insurer diversify the risk among themselves. Also, depending on the risk they take, they are liable to share the claim or loss on the coverage.
Insurance firms share risk all the time, even transferring a portion of the risk to another reinsurance firm. Reinsurance, also referred to as stop-loss insurance or insurance for insurers, is the practice of insurers shifting parts of risk portfolios to other entities through an arrangement to mitigate the possibility of paying a substantial liability arising from insurance claims.
The ceding party diversifies its insurance policy and the reinsurer recognises and takes over a portion of the potential obligation in return for a share of the premium.
Reinsurance gives the insurer with greater security by protecting the insurer from accrued individual commitments. The insurers also have the provision for underwriting the policies that cover for a substantial amount of risk without increasing the cost of administration to cover the margin of solvency unnecessarily. Similarly, reinsurance provides insurers with substantial assets to ensure liquidity in the event of any exceptional losses.