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The sharing of risk between the insurer and the insured. Co-insurance arises when an insurance policy covers only a proportion of total losses. In such a case the insured does not receive full compensation for any loss so bears part of the risk. This is often desirable since cover for the entire loss may create a moral hazard: the insured would take too few precautions to avoid the risk, for example of fire or motor accidents.


Reference: Oxford Press Dictonary of Economics, 5th edt.