Coinsurance

Coinsurance is a property insurance mechanism designed to ensure that policyholders insure their property to an adequate percentage of its full replacement value, typically 80%, 90%, or 100%. If the insured carries less coverage than the coinsurance requirement, the insurer reduces claim payments proportionally using a penalty formula: the insurer pays only the ratio of actual coverage to required coverage, multiplied by the loss amount, minus the deductible. For example, if the coinsurance clause requires 80% coverage on a $1 million building but the insured only carries $600,000, claim payments are reduced by 25%. In COI compliance, coinsurance provisions matter when verifying that tenants or vendors carry adequate property coverage. If a vendor's property policy has a coinsurance penalty, it could leave the certificate holder's interests underprotected in the event of a loss. Compliance teams should verify that insured values align with coinsurance requirements to avoid unexpected coverage shortfalls.