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Difficulty: MediumReinsurance, Co-insurance, and Underwriting Concepts

Kinsmen Manufacturing Company, seeking to cover a high-value industrial facility, enters into a direct contract with three separate insurance firms where each firm agrees to absorb a specified percentage of the total risk directly with the insured. Which insurance concept is illustrated by this risk-sharing arrangement?

  1. Co-insuranceAnswer
  2. B
    Reinsurance
  3. C
    Underwriting
  4. D
    Subrogation

Answer

Co-insurance
Co-insurance is an insurance arrangement where two or more insurance companies directly enter into a contract with a single insured to share a large risk in agreed percentages.

Step-by-Step Solution

1
Analyze the contractual relationship described in the scenario.
The insured (Kinsmen Manufacturing Company) holds direct contractual relationships with multiple insurance companies simultaneously for covering portions of the same risk.
Direct contractual arrangement between the policyholder and multiple insurers for sharing risk exposure defines co-insurance.
2
Distinguish co-insurance from reinsurance and underwriting.
Reinsurance is a transaction strictly between two insurers where the insured has no direct contract with the reinsurer, whereas underwriting is risk assessment prior to policy issuance.
This confirms that co-insurance is the correct commercial term for joint direct coverage.

Key Concept

Co-insurance vs Reinsurance operational relationship
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Topics

Reinsurance, Co-insurance, and Underwriting Concepts

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