With co-insurance, the more the merrier is not always the case

Although co‑insurance is not a new concept, we are now encountering these sharing arrangements more frequently and in a wider variety of forms across UK property claims. This trend is particularly noticeable on higher‑value and more complex losses, where capacity requirements and market dynamics often necessitate multi‑insurer participation.

The purpose of this note is to highlight an example of the types of co‑insurance arrangements we are increasingly encountering, outline the practical, and sometimes problematic, issues that can arise during claims handling, and explain how these arrangements can affect the overall conduct, pace, and resolution of major losses, and on occasion unintentionally impact the customer journey.

By way of introduction, Co-insurance typically involves two or more insurers sharing the same risk, each covering a proportion of the total sum insured. This is common in large commercial or industrial risks where the exposure is too great for a single insurer to carry alone. While the principle is straightforward, the execution, especially in the context of a major loss, can sometimes be anything but.

Historically the most standard co-insurance arrangements in the UK have involved only a small number of sharing insurers however in recent years we have noted co-insurance arrangements being more commonplace and of note, it can often involve 10+ Insurers with their respective shares sometimes being single digit percentages. As low as 1 or 2%.

There are of course many other types of co-insurance arrangements, most being bespoke dictated by the nature of the insured business and the territories they operate in.

For the most common type of co‑insurance arrangement, there will be a Lead Insurer responsible for underwriting, claims handling and claims authority. The following market insurers write a percentage share of the risk, and the insured is in contract with each insurer individually. Ordinarily, the Lead Insurer will only engage directly with the co‑insurers when proposing non‑routine decisions or actions they intend to take, whether relating to policy coverage or to the level and basis of settlement.

As an experienced Adjuster, I recall that when I first started out in Loss Adjusting, we received a generous £5 uplift on the Insurers scale fee for co-insured claims, this sum principally being intended to meet the cost of additional admin and postage stamps. The landscape has changed considerably since then

What trends are we seeing today?

In the first instance once we identify a co‑insurance arrangement (this itself may not immediately be obvious), we need to ensure all co-insurers are notified of the claim in order that we can obtain their contact details, claim references etc. This process alone can take a considerable period and be far from straightforward. Thereafter once our reports have been approved for issue by the Lead Insurer, we now find co-insurers are now often significantly more engaged in the claims process than was historically the case.

In the aftermath of a major property loss, whether a devastating fire, flood or storm incident, a co-insurance arrangement on a risk can complicate what is already a complex and challenging claim situation. While co-insurance arrangements are designed to spread risk, they also introduce a host of operational challenges that can delay key decisions being made, claim payments, settlement and even strain relationships. In extreme situations we have seen the policyholder only receiving a partial payment when some Insurers do not follow the lead and challenge not only their view of cover and interpretation but sometimes also their underwriting of the risk itself. On occasions, some co- insurers appoint their own solicitors independently which can result in differing views on key issues, inevitably leading to delays.

On recent claims we have had situations where external consultants we or Insurers wish to appoint will not take the appointment when they are made aware a co‑insurance arrangement is in place.  Ultimately, we had to confirm the Lead Insurer would fund the Consultants fees in full in the first instance.

On rare occasions on higher values claims, we do however encounter situations where the Lead Insurer makes 100% of the claims payments and subsequently seeks reimbursement from the Co‑Insurers.

With a view to mitigating the risk of the customer experiencing an unsatisfactory or protracted claims journey, all parties must aim to ensure that the following are achieved:

• Clear Claims Agreements: Robust claims protocols should be established at placement, including mechanisms for early claim notification.
• Regular Communication: Maintain open and consistent dialogue between co‑insurers throughout the lifecycle of the claim to avoid surprises or misalignment.
• Market Meetings: Where appropriate, arrange market meetings to ensure that co‑insurers are able to participate in key decisions.

Conclusion

Co‑insurance is a powerful and essential mechanism for managing large‑scale property risks, but it requires collaboration, clarity, and, above all, regular, high‑quality communication and engagement to ensure the customer journey remains as seamless and as uncomplicated as possible.