Question

Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each.
If Lisa has a $360,000 loss, how much of the loss will be covered by each policy if the loss is settled on a pro-rata basis by the insurers?

Answer 1

Answer:

First one will cover 241,200$ of total loss and the other two 61,200$ each

Explanation:

Pro-rata in the insurance means that the loss will be covered at a certain proportion to the insurance interest in the asset. This is also called first condition of average. if first policy covers 400,000 $ of loss and the other two 100,000$ each, than the proportion for the first policy is 400,000/600,000 equals 0,67 or 67% and for the other two 0,17 or 17%. This would mean that the first one would cover 67% of 360,000$ loss or approximately 241,200$ and the second two would cover 17% of total loss each or approximately 61,200 dollars.