What is reinsurance and coinsurance?

Reinsurance is a practice where insurance companies transfer a portion of their risk to other insurers to reduce their potential losses and stabilize their finances. It allows primary insurers to take on larger policies while mitigating exposure to catastrophic events. Coinsurance, on the other hand, is an arrangement in which two or more insurers share the coverage of a policyholder's risk, with each insurer covering a specified percentage of the claim. This helps distribute risk among multiple parties, ensuring that no single insurer bears the entire burden of a loss.