Coinsurance Commercial Property


Coinsurance and Blanket Limits in Commercial Property Insurance

Flynn has been investing in commercial real estate for some time now. He owns, under his real estate corporation, over 50 buildings located in the city, as well as the nearby suburbs. His real estate portfolio consists primarily of leased retail and office space, with some service occupancies, as well. Flynn is preparing to purchase another building in the city and is arranging a mortgage with a new lender – More Money Lending. To his surprise, the lender has rejected an insurance binder obtained by his risk manager, Allie, from his insurance agent. More Money does not accept building insurance with coinsurance – and the binder given to More Money lists coinsurance with a percentage of 90%. 

Coinsurance As Flynn relies on his risk manager, Allie, to understand his insurance coverage, he has never read his insurance policies. But now he is alarmed by “coinsurance,” as it seems to Flynn – based on his limited dealings with health insurance – that his insurance company will never pay more than 90% of any loss that he has, regardless of the amount or limit of insurance he has purchased. This sounds problematic, and he immediately arranges to meet with Allie and his insurance agent, Donna, to discuss this matter.

Coinsurance Explained
At Flynn’s request, Allie and Donna explain the concept of coinsurance. At the outset, they make clear to Flynn that coinsurance in property insurance is not the same as the 80/20 cost sharing in some health insurance policies. Instead, in property insurance, coinsurance generally means Flynn must purchase a certain limit of insurance on his building – the limit purchased must be no less than a denoted percentage of the full value1 of the building. Here, the percentage is 90%. Because Flynn did obtain, as part of his due diligence, a professional appraisal that determined the replacement value of his building as $5 million, Allie and Donna tell Flynn that he must purchase a limit of no less than 90% of $5 million or $4.5 million. If he does not purchase a building limit of at least $4.5 million, Flynn will face a penalty as a “co-insurer.” 

The Coinsurance Penalty Allie refers Flynn to the pages of his property insurance policy, which provide two straightforward illustrations of the concept of coinsurance – including the penalty for being underinsured and what constitutes adequate insurance.2 Allie suggests to Flynn an example using his situation as a hypothetical – what would happen if he purchased less than 90% of the $5 million limit? Let’s say that Flynn bought a limit of $3 million (the amount of his loan principal). If Flynn then had a relatively small covered loss – say a $200,000 water damage loss caused by a broken pipe – he would be penalized as a coinsurer. He would be penalized because the insurer would, at the time of the loss, calculate whether Flynn had complied with the coinsurance condition. 

The Coinsurance Formula To determine compliance with the coinsurance condition, the insurer would first ascertain the replacement cost of the building ($5 million) and then note the coinsurance percentage (90%) on the policy – and thus conclude that Flynn should have purchased $4.5 million ($5 million times 90%). But Flynn (in the hypothetical situation) did not meet the coinsurance condition – the limit purchased was $3 million, not the $4.5 million limit that he should have bought. The insurer would compute the coinsurance penalty by dividing the limit Flynn did purchase ($3 million) by the limit he should have purchased ($4.5 million), thereby yielding a percentage of 66%. This percentage (66%) would then be multiplied by the amount of the water damage loss ($200,000), producing a loss payable of $133,333, which is further reduced by Flynn’s deductible. The result is that Flynn would suffer a coinsurance penalty of $66,666 and he would be a 33% “co-insurer.” After further discussion, Flynn now understands the coinsurance formula – did (purchase) divided by should (purchase) may result in reduction in payment for even small or partial losses.

Blanket Building Limit Allie now refers Flynn to a third example3 in the policy regarding coinsurance – how coinsurance is determined if the policy is written with a blanket limit. Flynn’s commercial insurance policy provides a blanket limit for all his buildings, with one limitation that Allie promises to explain later. 

A blanket limit4, according to Allie, means that one limit applies to more than one type of property or one limit applies to the same type of property but to more than one location (or both). As Flynn is insuring only the buildings, the blanket limit in his situation applies to the same type of property (buildings) over numerous locations. One limit of $250 million applies to all of Flynn’s listed buildings (again, with one exception). The benefit of this approach becomes evident to Flynn. In the event of certain5 covered losses to one or more of Flynn’s listed buildings – such as may be caused by a hurricane – Flynn has up to $250 million of insurance (in most instances). 

Coinsurance and Blanket Limits Blanket limits change the calculus of coinsurance. While the formula is the same – did divided by should times the loss – with a blanket limit, the insurer must determine compliance with the coinsurance condition using total aggregate values. In Flynn’s case, for the insurer to calculate whether he has met the coinsurance condition, the insurer must use the $250 million limit (did), ascertain the insurance limit required (should), which is 90% of the full replacement value of all Flynn’s buildings (an onerous undertaking at best) and then multiply that percentage by the $200,000 water damage loss. As Allie points out, this provides more room for error – if a few buildings are a bit underinsured, but some others are over insured, the chance of applying a coinsurance penalty are reduced.   

Margin Clause Two locations that Flynn owns do not have an automatic sprinkler system that is to the insurer’s liking. While the insurer did provide coverage for these two buildings and include both locations within the $250 million blanket building limit, the insurer also added a Margin Clause endorsement6 for these two locations. Flynn recalls that Allie had promised to explain this limitation to him.  

The explanation is this: for these two locations, the insurer will not pay up to the $250 million blanket building limit, but instead will pay no more than values last reported for each building multiplied by the percentage shown in the Margin Clause endorsement. While the percentage ranges from 105% to 130%, Flynn’s policy lists in the Margin Clause endorsement 120% for each of the two buildings (reported as locations #16 and #42.) If the building at location #16 was reported as $3 million and location #42 was reported as $6 million, the true limit applicable to each location is $3.6 million ($3 million times 120%) and $7.2 million ($6 million times 120%).7 The effect of the Margin Clause in Flynn’s policy has been to eliminate these two locations from receiving the benefit of the full $250 million blanket building limit. 

More Money’s Error – The Agreed Value Optional Coverage At the end of the discussion regarding coinsurance and the blanket building limit, as well as the margin clause limitation, Donna addresses More Money’s rejection of the binder. While the binder does show a 90% coinsurance, More Money failed to notice the coinsurance condition did not apply to any building on Flynn’s policy – the binder clearly listed that Flynn had purchased the Agreed Value optional coverage.8 Donna will explain to More Money that the agreed value option effectively suspends the coinsurance condition to the end of the policy period and that More Money should accept the binder, as the 90% coinsurance condition does not apply to the new building. Donna tells Flynn the agreed value option was provided to Flynn only because the insurer believed the values reported for each building were a reasonably accurate estimate of the full replacement value of each. 

Conclusion  While policyholders should strive to provide the insurer with complete and accurate values for buildings (and business personal property) that are the subject of insurance, policyholders also should understand the basic workings of the coinsurance condition, including the potential penalties for underinsurance, as well the purpose of the agreed value option, blanket limits and margin clauses, if applicable. Even a cursory review of the basic illustrations found in the coinsurance condition of the Building and Personal Property Coverage Form should inform any policyholder of the penalties of underinsurance and thus the need for adequate insurance.  Stated differently, no special skill or expertise in insurance is needed to make sense of the coinsurance illustrations – taking only a few minutes to read the examples provided in every Building and Personal Property Coverage Form9 should suffice.

1 If the Optional Coverage of Replacement Cost is purchased, the measure of the building value is the full replacement value of the building. If the Optional Coverage Replacement Cost is not purchased, the measure of the value of the building is the full actual cash value of the building. See Building and Personal Property Coverage Form CP 00 10 10 12 © Insurance Services Office, Inc. 2011.
2 See Building and Personal Property Coverage Form CP 00 10 10 12 - F. Additional Conditions 1. Coinsurance – Example 1 to Example 2 © Insurance Services Office, Inc. 2011 
3 See Building and Personal Property Coverage Form CP 00 10 10 12 - F. Additional Conditions 1. Coinsurance – Example 3 
© Insurance Services Office, Inc. 2011
4 A blanket limit may be incorrectly referred to as a blanket policy. The two should not confused  – the former refers to how the limit applies, the latter often refers to a policy that covers property that is not listed on the policy or covers property not at a location specifically listed on the policy. 
5 Sublimits apply to certain causes or types of loss such as Earth Movement, Flood, Ordinance or Law, etc. 
6 CP 12 32 06 07 – Limitation on Loss Settlement – Blanket Insurance (Margin Clause) © Insurance Services Office, Inc. 2007
7 Margin clauses (non-ISO) are also used enhanced the applicable limit. For example, a specific building limit is shown as $1 million for that building with a margin clause of 110%, effectively providing a limit of $1.1 million. 
8 See Building and Personal Property Coverage Form CP 00 10 10 12 – F. Optional Coverage 1. Agreed Value © Insurance Services Office, Inc. 2011
9 While this article in based on the latest (October, 2012 edition) of the ISO Business and Personal Property Coverage Form CP 00 10, the illustrations have been included in this policy form for over 30 years. 

Craig F. Stanovich, CPCU, CIC, CRM, AU is co-founder and principal of Austin & Stanovich Risk Managers, LLC, a risk management and insurance advisory consulting firm specializing in all aspects of commercial insurance and risk management, providing risk management and insurance solutions, not insurance sales. Contact Criag at or visit
Contact Us

To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker.  If you do not have a contact at AmWINS, please click here.

Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2017 AmWINS Group, Inc.

Most Popular Insights

5 Strategies for Successful Small Business Renewals During COVID


In the current economic climate, many small businesses are struggling and some may even fail. Despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business. This article provides guidance on navigating the complex small business marketplace and helps retailers fine tune their understanding of what insurable risks will look like over the next 12 to 24 months.

What Product Recall Insurance and Risk Mitigation Plan Is Right for Your Clients?


​Product recalls are one of the most damaging events a business may encounter. In order to effectively respond to an incident, companies must be prepared with proper risk management strategies. As policy wording varies, it's also critical to ensure your clients have the right policy type in place to appropriately address their first- and third-party exposures.

State of the Market - Q2 2020


Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.

10 Catastrophe Claim Tips for Severe Weather Season


Severe weather can be unpredictable and strike at any time. Help your clients be prepared in the event their property is damaged by a hurricane, tornado, hailstorm or similar disaster with these 10 catastrophe claim tips.

On-Demand Webinar: COVID-19 Economic Impact and Future Outlook


As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.

Lloyd's CEO and Property Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Property underwriters on how they view the pandemic's impact both the Property sector and their syndicate's business.

Lloyd's CEO and Casualty Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Casualty underwriters on how they view the pandemic's impact both the Casualty sector and their syndicate's business.

Lloyd's CEO and Professional Underwriters Share COVID-19 Response and Market Update


This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Professional Lines underwriters on how they view the pandemic's impact both the Professional Lines sector and their syndicate's business.

Flood 101: What to Know About Standard Flood Insurance


Ninety-eight percent of all United States counties were impacted by a flood event in 2018, yet many property owners remain unaware of their true risk of flood or what their existing policies cover. This article highlights key statistics about flood risk and outlines the differences between the National Flood Insurance Program and private market flood insurance.

Professional Lines Challenges and Market Response During the COVID-19 Crisis


The COVID-19 crisis has created a rapidly changing environment for the Professional Lines market. With the uncertainty of how claims will develop and the potential for increased exposure, retailers must be proactive. In this article, AmWINS specialists share their insights on why this is more important now than ever, including reactionary underwriting trends, D&O policy exclusions and impacts to EPLI, as well as the threat for increased cyber attacks and crime losses.

Small Business and Personal Lines During the COVID Crisis


Loss of revenue caused by stay-at-home orders due to the coronavirus pandemic has affected small businesses and the insurance industry serving them significantly. As retailers and carriers prioritize their focus to adapt to the “new normal” of daily transactions, underlying market dynamics remain unchanged. In this article, our experts share their insight on the current changes that we are seeing the small business and personal lines market, and how to navigate the market a this time of uncertainty.

Mind the Gap: COVID-19's Impact on the Logistics Industry


The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Port closures, demand surges and production shifts are requiring nimble response to keep up with change. This article arms insurance brokers with the information needed to understand the changes taking place and plan for what is likely to occur in the months ahead.

Navigating the Casualty Market’s Response to COVID-19


The Casualty market’s response to COVID-19 is continuously evolving. With a wide array of factors already impacting this sector pre-crisis, segments of the Casualty marketplace are responding to the pandemic differently. In this article, our industry specialists share overall themes in the Casualty market and take a closer look at how various segments are being impacted.

Top COVID-19 Issues Impacting Builder’s Risk Insurance


The COVID-19 pandemic is causing historical disruption to the construction industry. These changes mean that risk mitigation strategies need to be implemented or revisited, policy language should be reviewed, and carriers should be apprised of all changes at the work-site. In this article, AmWINS specialists examine the major areas of concern for Builder’s Risk insureds, including government-mandated shutdowns, supply chain-driven slowdowns and policy wording that could limit coverage, and provide guidance for retailers to achieve the best results for their clients.

State of the U.S. Logistics Insurance Market


For decades, the logistics insurance market has been considered a sub-market of the cargo or ocean marine market. However, the continual rise of e-commerce and its effect on the global supply chain has carved out a complex and expansive industry niche. This article provides insight into the various lines of coverage, the specialized underwriting approach, and rate surges within the U.S. logistics insurance market.

Lloyd’s & the London Market’s Response to COVID-19


During the COVID-19 pandemic, Lloyd’s remains open for business and syndicates have successfully transitioned to working from home. However, there are notable changes in how the London market is approaching business. In this article, specialists from THB, AmWINS’ London broker, share their insight on consistent themes across the London Market as well as updates on various lines of business.

COVID-19 Claims Advice


There have been a lot of questions regarding COVID-19, in particular about coverage and claims handling. This claims advice is intended to offer guidance to help our retail clients through these difficult times.

Insurance Impacts of COVID-19 on the Healthcare and Senior Living Industry


As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.

Statute of Limitations Changes Cast a Shadow on Public Entities


​Public entities are facing a climate of change as the market continues to harden and insureds are faced with double-digit rate increases in property and liability. Contributing to this disruption are statute of limitation changes for sexual abuse victims, which have extended or removed the time limit for which a victim can file a claim. This article examines the impact of increased claim activity and discusses considerations that need to be made to better manage costs during this time of uncertainty.​

COVID-19 – Are Your Clients Covered?


The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.

Sign Up For Our Monthly Newsletter

Sign Up