Pro Rata Insurance Share Calculator
How to Calculate Pro Rata Share Insurance
When a property or liability is covered by more than one insurance policy (often called "concurrent coverage" or "double insurance"), the Pro Rata Share method is used to determine how much each insurer contributes to a claim settlement. This clause prevents an insured party from profiting by collecting the full claim amount from multiple carriers.
The Pro Rata Formula
The calculation involves determining the ratio of a specific policy's limit to the total limit of all applicable policies combined. That ratio is then applied to the total loss amount.
Step 1: Determine Total Coverage
Add the limits of liability for all policies involved.
Total Limits = Policy A Limit + Policy B Limit + …
Step 2: Calculate Pro Rata Share Percentage
Divide the individual policy limit by the Total Limits.
Policy A Share % = Policy A Limit / Total Limits
Step 3: Calculate Payment Amount
Multiply the Share % by the actual Loss Amount.
Policy A Payment = Policy A Share % × Loss Amount
Example Calculation
Imagine a business has two insurance policies covering the same building inventory:
- Policy A Limit: $100,000
- Policy B Limit: $50,000
- Total Loss (Claim): $30,000
First, calculate the total coverage: $100,000 + $50,000 = $150,000.
Policy A Share: $100,000 / $150,000 = 66.67%.
Policy B Share: $50,000 / $150,000 = 33.33%.
Policy A Pays: 66.67% of $30,000 = $20,000.
Policy B Pays: 33.33% of $30,000 = $10,000.
Why is Pro Rata Important?
Understanding pro rata liability is crucial for claims adjusters, insurance agents, and policyholders dealing with overlapping coverage. It ensures equitable distribution of loss among insurers based on the premiums they collected for the risk (represented by their coverage limits). Without this calculation, disputes would arise over which policy acts as primary versus excess coverage.