What does pro-rata liability require from the insurer?

What does pro-rata liability require from the insurer?

• A. Complete payment of the loss
• B. Payment based on the percentage of the claim
• C. Payment proportional to the insurer's limit of insurance
• D. Payment before other insurances

Answer: (C)

Pro-rata liability stipulates that an insurer will pay a proportion of the loss based on its limit of insurance in relation to the total insurance covering the same risk. This means that if there are multiple insurers involved, each one is responsible for a share of the claim that corresponds with their respective coverage amounts. For instance, if one insurer covers 60% of the total limit while another covers 40%, then in the event of a loss, the first insurer would pay 60% of the covered loss, and the second would pay 40%. In this context, the concept ensures that no insurer pays more than its fair share of the total loss, promoting fairness and preventing situations where one insurer could be disproportionately burdened. It aligns with the principles of insurance where coverage is proportional to the risk that each insurer has taken on. Thus, insurers can effectively manage their exposures and maintain financial stability while fulfilling their obligations to policyholders.

Pro-rata liability stipulates that an insurer will pay a proportion of the loss based on its limit of insurance in relation to the total insurance covering the same risk. This means that if there are multiple insurers involved, each one is responsible for a share of the claim that corresponds with their respective coverage amounts. For instance, if one insurer covers 60% of the total limit while another covers 40%, then in the event of a loss, the first insurer would pay 60% of the covered loss, and the second would pay 40%.

In this context, the concept ensures that no insurer pays more than its fair share of the total loss, promoting fairness and preventing situations where one insurer could be disproportionately burdened. It aligns with the principles of insurance where coverage is proportional to the risk that each insurer has taken on. Thus, insurers can effectively manage their exposures and maintain financial stability while fulfilling their obligations to policyholders.