What occurs when multiple insurers share coverage of a loss?

When multiple insurers share coverage of a loss, each insurer pays its share of the loss based on the terms outlined in their respective policy limits. This practice is known as co-insurance or sharing of risk. In such arrangements, the total coverage amount is divided among the insurers, allowing for a distribution of risk and protecting the insured from having to rely on a single insurer for full coverage.

This method ensures that no single insurer bears the entire financial burden of a large loss, which can spread out the potential risk and financial exposure among various companies. Each insurer’s obligation to pay is typically proportional to the coverage they provide; therefore, they contribute to the total amount of the claim in accordance with their policy terms.

This concept is essential for understanding how insurance works in scenarios involving multiple policies or insurers and underscores the collaboration within the insurance market to ensure comprehensive loss protection.