Coinsurance and reinsurance.

 Coinsurance and reinsurance.

In order to be able to insure "large risks", insurance companies insure themselves with other insurance companies. It’s coinsurance and reinsurance. We take a look back at these two concepts that will be debated in the current day with the covid-19 crisis and the ability of traditional insurers to find new reinsurers in the future to insure certain risks, such as pandemic risk.

Co-insurance is the insurance operation which allows several insurers to cover the risk (s) held by a single insured, by a single insurance contract. This is called a horizontal risk division since each insurer has a% of the risk, provided for in the policy. As soon as a claim occurs, each insurer is required to compensate it according to its% risk, in return for which each insurer receives a% premium corresponding to the% risk held.

The coinsurance contract is therefore a contract with several parties:
- The subscriber who subscribes and pays the contributions;
- The beneficiary who receives the premiums paid by the insurer in the event of the event provided for in the contract;
- The insured / the insured object on whom the risk weighs;
- The various insurers (the co-insurers) with an insurer representing all of the other insurers called the leading insurer.

A second "insurance contract", the mandate, is taken out between the leading insurer and the other insurers in order to determine what are the rights and obligations of the leading insurer towards the other insurers in the management of the insurance contract with the insured and in claims management. Not all co-insurers are jointly responsible for each other (???), which means that in the event of default by one of the co-insurers the others are not obliged to share its remaining debt. Unless the mandate provides for it (classic contract law - new article 1134 of the Civil Code) expressly (“solidarity cannot be presumed” Civ 2nd, January 18, 2006, n ° 04-15.907).

Even if the case law of the Court of Cassation in matters of co-insurance is in a line of protection of the insured, by obliging the leading insurer to pay the remainder of the claim with the responsibility of recovering the funds from the other co-insurers [ 5]. The Court refers to the judgment of the trial judges to rule on the engagement of the leading insurer [6].

In conclusion, the Court of Cassation refers to the trial judges to rule on the advisability of recovering the funds from the leading insurer, even in the absence of a clause allowing it. But the Court does not judge as an unfair term, the clauses which exclude the solidarity between the co-insurers.

Co-insurance is a horizontal division of risks, distributed among several insurers. There is another form of "coinsurance" called line insurance. Indeed, it incorporates the stated principles, namely:
- a single insurance policy;
- the same risk held by a single insured;
- several separate insurers.

What will differentiate coinsurance from line insurance is that in the case of line insurance, the distribution among insurers is a vertical distribution.

Thus the first insurer is required to indemnify all claims and parts of claims between a value x and x + 1, the second insurer is required to insure a loss value between x + 1 and x + 2, etc. As soon as a claim occurs, not all insurers are called upon.

Only insurers who cover the portion of claims are solicited.

"Reinsurance is the operation by which an insurance company (the ceding company, insures itself with another company (the reinsurer), for part of the risks that it has assumed" [7] .

Imagine a risk divided into 3 parts, the first from 0 to 20%, the second from 21 to 50% and the last from 51 to 100%. If a loss of 30% occurs, then the first company which covers from 0 to 20% indemnifies from 0 to 20 and the second which covers from 21 to 50 indemnifies hopefully from 21 to 30 (the amount of sinister).

Reinsurance and coinsurance are therefore mechanisms that provide stability to traditional companies. This stability is a guarantee of security and confidence for policyholders who will more easily have recourse to the latter to protect our historical heritage.

In the event of a very costly loss on a historic asset, the insurer will call on its reinsurer to help it compensate the covered loss. More recently, following the Covid 19 crisis, the company Axa called on its reinsurer to help compensate the operating loss of its professional policyholders.