Subtle Difference between the Two

Originally posted by : sivaram
	What  is the difference between Reinsurance and CO Insurance ? Please Give Detailed Example to understand the same

Dear Sivaram,

Reinsurance means:

“Reinsurance is an instrument of risk transfer and risk financing.

Re-insurers, in turn, provide insurance to insurance companies.”

CoInsurance means:

An insurance  policy, where  a sharing of risk between the insurer and the insured.

sir,

can u be a little elobrate about coinsurance as i cant understand this can u give one example on this

Re Insurance:

Reinsurance means one Insurance company purchasing coverage from a second Insurance company for a risk that the first insurance company is insuring.

Eg: New Max Life Insurance Company has written a Rs.10 Lacs life insurance policy on the life of Mr.x. New Max is concerned that Mr.x’s death would have a material impact on New Max’s profits from the 10 Lacs claim. So, New Max buys coverage on the life of Mr.x from Smart Aviva Insurance Company. New Max decides to buy Rs.3 Lacs of coverage from Smart Aviva. If Mr x dies, New Max will have to pay his beneficiary Rs10 Lacs, but New Max can in turn collect on the coverage it obtained from Smart Aviva. The two insurance companies will share the loss, with Smart Aviva bearing Rs.3 Lacs of the loss and New Max Rs. 7 Lacs (Rs. 10 Lacs paid to the beneficiary less the Rs. 3 Lacs collected from Smart Aviva). Of course, both companies share in the premiums and profits of the coverage as well as the losses.

Co Insurance:

It is a provision of an insurance policy that provides that the insurance company and the insured will apportion between them any loss covered by the policy according to a fixed percentage of the value for which the property, or the person, is insured.

Eg: A homeowner has a Rs.120,000 fire insurance policy on her home, which is valued at Rs.150,000. The woman's coverage is 80 % of the home's actual cash value. If her house is completely destroyed by a fire, she will recover Rs.120,000, which is the full face amount of the policy. She is responsible for the remaining 20 % of its actual cash value, or Rs.30,000.

If a fire caused only Rs.20,000 worth of damages, the homeowner could recover only Rs.16,000, or 80 % of the loss. The homeowner is a Coinsurer for the remaining Rs.4,000, or 20 % of the replacement cost of the property.

In a way, Coinsurance clauses in fire or water damage policies encourage property owners to purchase full or nearly full coverage.

Hi

REINSURANCE:

Reinsurance is insurance purchased by insurers from other insurers to limit the total loss an insurer would experience in case of a disaster.

Ordinarily, the business owner has little to be concerned with when it comes to reinsurance. However, recent events, such as the War in Iraq, the rise of terrorism, and recent natural disasters, have made it difficult for insurers to secure reinsurance and, as a result, insurers have left the market in some states or premiums for certain types of insurance have risen to an all-time high.

Regards