Coinsurance in Commercial Property Insurance – What does this mean?
Our previous posts, What is my Property Worth and How Much Will They Pay?, brought focus to the values and valuation terms on your insurance program.
The insurer has a vested interest that the property limit used, reflects the correct reconstruction valuation. The limit is what your premium is based on and is the maximum amount the insurer is obligated to pay in the event of a claim.
Underinsured property leaves premium dollars on the table and exposes the insurer to a higher than anticipated loss at time of loss adjustment.
Insurers often use coinsurance clauses to reinforce the need for proper limits of insurance.
A coinsurance clause requires that you carry a limit of insurance that equals or exceeds the co-insurance percentage, typically 100%, 90% or 80%.
You should set your values using the following formula if a coinsurance clause is present. The values used should be consistent with the valuation clauses in the policy. An insurance policy is concerned with reconstruction valuation (the cost to rebuild or repair with new material). The market value or the purchase price of a building is not typically relevant when determining a reconstruction value. Often the market and reconstruction value are close, but the location of a building can drastically affect the market value and not influence the cost of rebuilding.
Reconstruction Value of Property x Coinsurance Percentage=
Limits of Insurance Required
At the time of loss, the insurer calculates the value of your property and calculates a ratio by dividing your limit by the value you should have carried. This ratio is then applied to the loss dollars to be paid.
Here are two examples to show how this process works.
The solution for co-insurance is proper valuation of your property. Insurance carriers use a number of tools to evaluate property values. You should be confident that the values you use as limits of insurance are adequate and meet the coinsurance provisions of your policy. The next installment of this series will discuss the ITV (Insure to Value) process.
Agreed Amount — This is a valuation that waives coinsurance, and the insurer agrees in advance that your values are acceptable. This is a desirable provision in your insurance policy and one that must be requested and justified before the underwriter will enter into this agreement. The team at Driehaus Insurance regularly assist our insureds in demonstrating that the values on your policy are adequate making the policy eligible for this important endorsement.
Agreed Amount / Blanket Coverage — Some insurers will offer both agreed amount and blanket coverage if they can justify the extension of these terms. This is the best insurance solution for you as you waive coinsurance and have the total blanket limit available at the time of loss.
The Driehaus Difference
Getting your values right, securing the best terms and conditions for your insurance program are what we do for our clients. We understand the process and can help you navigate the choices to be sure your insurance program protects what is important to you.
The descriptions of insurance coverage are general in nature and are not a replacement for actual policy language. We understand the process and can help you navigate the choices to be sure your insurance program protects what is important to you.
Call us at 513-977-6860 or visit our website at www.driehausins.com to learn more about us and to get in touch with us.