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🏢 '''Coinsurance (property)''' is a policy provision commonly found in [[Definition:Commercial property insurance | commercial property insurance]] that penalizes the [[Definition:Policyholder | policyholder]] for insuring a property at less than a specified percentage of its actual or replacement value. Unlike the health-insurance concept of coinsurance — where the insured shares a percentage of every [[Definition:Claim | claim]] — property coinsurance functions as an adequacy-of-insurance clause designed to prevent chronic [[Definition:Underinsurance | underinsurance]] and ensure that [[Definition:Premium | premiums]] fairly reflect the total value at risk.

📐 Here is how the mechanism works. A commercial property policy will state a coinsurance percentage, typically 80%, 90%, or 100%. If the insured carries [[Definition:Coverage | coverage]] equal to or greater than that percentage of the property's value at the time of [[Definition:Loss | loss]], claims are paid in full up to the policy limit. But if the coverage falls short, the insurer applies a coinsurance penalty, reducing the claim payment proportionally using the formula: (amount of insurance carried ÷ amount of insurance required) × the loss amount. For example, if a building worth $1 million is insured for only $600,000 under an 80% coinsurance clause (which requires $800,000), a $200,000 loss would be paid at only $150,000 — the insured effectively self-insures the gap. The calculation is performed at the time of loss, meaning that property values that have appreciated since the policy's inception can trigger unexpected penalties even when the original [[Definition:Sum insured | sum insured]] seemed adequate at binding.

⚠️ Property coinsurance has significant practical implications for [[Definition:Insurance agent | agents]], [[Definition:Insurance broker | brokers]], and risk managers. Getting the insured value wrong can leave a business severely exposed after a partial loss — and partial losses are far more common than total losses. Policyholders can avoid coinsurance penalties by purchasing an [[Definition:Agreed value | agreed value]] endorsement, under which the insurer and insured agree on the property's value at inception and waive the coinsurance clause for the policy term. [[Definition:Underwriter | Underwriters]] use the coinsurance requirement to maintain rate integrity across the portfolio: without it, policyholders could purchase minimal limits at low premiums and still collect full payment on smaller claims, distorting the [[Definition:Loss ratio (L/R) | loss ratio]] for the entire book. Understanding coinsurance is fundamental to accurate [[Definition:Property valuation | property valuation]] and sound commercial insurance program design.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Underinsurance]]
* [[Definition:Agreed value]]
* [[Definition:Commercial property insurance]]
* [[Definition:Sum insured]]
* [[Definition:Replacement cost]]
* [[Definition:Blanket insurance]]
{{Div col end}}

Definition:Coinsurance (property) - Revision history

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