What are some examples of risk sharing in insurance?

What are some examples of risk sharing in insurance?

Risk sharing in insurance involves distributing the risk among multiple parties. Common examples include co-insurance, where multiple insurers share the risk of a policy, and reinsurance, where insurers transfer portions of their risk to other insurers.

Can you explain co-insurance in more detail?

Sure! Co-insurance is an arrangement where two or more insurers share the risk of a policy. For instance, if a property is insured for $1 million and the co-insurance agreement is 80%, each insurer would cover 80% of any claim, up to the policy limit.

What about reinsurance? How does that work?

Reinsurance is when an insurance company purchases insurance from another insurer to mitigate risk. For example, if an insurer has a large policy, they might reinsure part of it to protect themselves from significant losses.

Are there any other methods of risk sharing?

Yes, other methods include mutual insurance companies, where policyholders share the risk and profits, and risk retention groups, which allow businesses to pool their risks.