Pro-Rata
To explain Pro-Rata I will use an example from my P&C GOLD Course:
(Here is the link to buy P&C GOLD)
ABC Corp has $100k of coverage on its building through Insurance Co. A and $50k of identical coverage on same building through Insurance Co B. Assuming coinsurance is not an issue, when a $24k loss occurs and the pro rata method is used, how much will each insurer pay?
Breakdown:
Com A has 100K and Com B has 50K. Just by looking at that, we should think, well company A is covering more of the building, so when a claim happens they will pay more of the claim than com B.
So, let’s do the math. First let’s find what will company A pay. We take company A and we divide it by both companies added together and multiply that times the loss/claim.
100,000/150,000 X 24,000 = Use your calculator, you will have one on the test. So first punch in 100,000 divided by 150,000 and hit the equal sign. You will get .66666667. Than hit the multiplication sign and then 24,000. You will get $16,000.
So we know that company A will pay $16,000.
See if you can do Company B on your own.
Recommended: Gold
The GOLD Course is ALWAYS the recommended class series for all students as it teaches the material in more depth. Over 30 hours of the most in depth classes with a more intensive teaching of the topic. Learn more about P&C GOLD
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