Coinsurance/Insurance to Value Revisited


Adjusters International Disaster Recovery Consulting

An Essential Concept in Property Insurance Coinsurance/Insurance to Value Revisited

By Robert J. Prahl, CPCU

An insured sustains a fire loss to its commercial building in the amount of $50,000. The actual cash value of the building is $1 million, but the amount of insurance on the building is $600,000. The policy contains an 80 percent coinsurance clause and a $1,000 deductible.

After the loss is adjusted and payment is offered to the insured, the insured calls his agent complaining about the low amount being offered by the adjuster.

The insured wants an explanation of coinsurance, of how the claim payment was determined and a recommendation on how to avoid this situation in the future.


The need to adequately insure property, whether it be commercial or personal, is one of the most fundamental concepts of insurance. Its importance is acknowledged by insureds, agents and brokers, and carriers alike.

Yet the fact that policyholders can be and often are dissatisfied with the amount of a claim settlement after a loss suggests that much work remains to be done by all parties in properly addressing the matter. In this issue of Adjusting Today insurance expert Robert Prahl explains how that process can begin with a better understanding of the basic tenets of coinsurance and insurance to value.

Mr. Prahl describes how these principles apply to property insurance and how penalties for underinsurance are calculated. Furthermore, he discusses what can be done to avoid or minimize the consequences of underinsuring. He even outlines some of the tools used by insurers to determine accurate replacement values.

This is a subject that cannot be revisited too often! We hope you will find it to be interesting and valuable reading.

Sheila E. Salvatore Editor