Coinsurance, margin clauses, and agreed value in APD

Coinsurance, margin clauses, and agreed value settings shape how blanket losses are paid in APD product models. These concepts help product designers define realistic coverage limits, penalties, and endorsements for commercial property scenarios.

Coinsurance

Insurers require that a building and/or personal property is insured to 90-100% of estimated replacement cost to prevent overpaying on a loss. The values are reviewed and potentially increased with inflation every year to ensure that they are accurate. If the risk object is not insured to 90-100%, there is a penalty in the event of a claim. In the context of blankets, this is called coinsurance. This type of coinsurance is between the insured party and the insurer.

For example, if the insured party has 100% coinsurance, the blanket coverage covers 100% of the cost to rebuild ($30,000,000). If the insured party has 90% coinsurance, the blanket coverage limit is $27,000,000 (90% * $30,000,000) and the insured party is responsible for any excess loss.

Margin clauses

Margin clauses can also be added by the insurer to limit how much is paid for a loss at each location. A margin clause typically ranges between 105% and 130% of value.

Agreed value

Agreed value is another endorsement that can be added to ensure that the insured party is not penalized for not insuring to 90-100% of value. This endorsement is typically used when a building is dilapidated or unusable for some reason.