COINSURANCE VS REINSURANCE

In the complex landscape of insurance, where uncertainties are inherent, coinsurance and reinsurance play pivotal roles in distributing and mitigating risks. From ensuring the stability of individual insurance policies to fortifying the financial strength of insurance companies, coinsurance and reinsurance stand as essential pillars in the architecture of risk mitigation.

In most title insurance cases, the title insurer will issue a policy for the full amount of the transaction and is therefore liable for up to the full amount of the policy liability. But what happens if the amount of the requested insurance exceeds a title insurer’s statutory imposed liability limit? Or what if the insured wants the security of multiple title insurance companies?

This is where Coinsurance and Reinsurance come into play.

WHAT IS COINSURANCE?

Coinsurance occurs when two or more title insurance companies insure a given transaction via separate title insurance policies or, more typically these days, via one policy issued by the lead coinsurer with a coinsurance endorsement attached executed by the title insurance companies. The proportionate share of the liability for any claim or loss under a policy that is co-insured by two or more title insurers is determined by the liability shown on their separate policies of title insurance or on a co-insurance endorsement attached to a single policy of title insurance.

For example, for a transaction having a total liability of $10,000,000, a $2,000,000 liability on a separate policy or on a co-insurance endorsement would mean that the title insurer is responsible for 20% of any claim or loss under the policy up to its total liability of $2,000,000.

A typical coinsurance endorsement, also known as a “Me Too” endorsement, reads, in part, as follows:

First Title Insurance Company, a _____ corporation, Second Title Insurance Company, a _____ corporation, and Title Insurance Company, a _____ corporation, (herein referred to individually as the “Insurer” or jointly as the “Insurers”) join as Insurers under that certain policy of title insurance issued by First Title Insurance Company under its No. _____, to which this endorsement is attached.

Anything in this policy notwithstanding, each of the Insurers respectively shall be liable only for such proportion of loss for which the Insurers may become liable under the policy and costs which the Insurers are obligated to pay under the Conditions of the policy, in the proportion of the amount set forth for each Insurer below to the face amount of the policy.

KEYS TO UNDERSTANDING COINSURANCE:

1. Each title insurer may issue a separate policy for their designated amount of the liability, or may execute a “Me Too” endorsement. Therefore, the sum of the policy or policies would equal the total liability coverage amount.
2. The liability of the transaction is determined by the proportion of insurance. A $2,000,000 coinsurance policy on a $10,000,000 total amount of coverage would be responsible for 20% of the claims/liability.
3. Coinsurance rates differ based on each title insurer’s files rates.

WHAT IS REINSURANCE?

Reinsurance occurs when a title insurer wants, or is requested by the insured, to share some of the policy’s liability with another title insurer. The original title insurer will write the policy for the full amount of the transaction, and then purchase reinsurance for claims arising from a certain dollar amount from another title insurance company.

For example, an insured requires $50,000,000 worth of coverage from title insurer #1. Title insurer #1 is only authorized to issue policies up to $35,000,000.

Title insurer #1 goes to title insurer #2 and purchases Reinsurance from them for the liability of $15,000,000. Title insurer #1 writes the $50,000,000 policy

(as reinsured by title insurer #2) but is only liable for claims $35,000,000 and below – claims exceeding $35,000,000 would be paid by title insurer #2.

KEYS TO UNDERSTANDING REINSURANCE:

1. The original title insurer (the “ceder”) issues a policy for the full amount of the transaction/coverage.
2. The ceder sends an offer letter to other title insurers to get pricing for reinsurance by providing specific details of the transaction.
3. The ceder buys reinsurance from another title insurer (the “reinsurer”) for liability over a certain amount, keeping the primary retention amount and pushing the liability in excess of this amount to the reinsurer.

4. Rates may vary based on amounts and determined risks. A title insurer’s reinsurance department typically negotiates the rate and drafts the reinsurance agreement.

In larger transactions, it is possible to have both coinsurance and reinsurance. The goal of both is to spread the liability of large transactions across multiple title insurance companies, to limit the loss of any single title insurer.

Our team is based out of Las Vegas with an extensive national presence that allows us to close your transactions on a national scale, simplifying your processes. Our nationwide platform means you are taken care of no matter what state you choose to do business in. Whether your deal is complex or straightforward; large or small; local or national, you have a partner with the Seibold Group.

Have questions about coinsurance and reinsurance? Shoot us an email, michele@seiboldgroup.com to see how we can help.