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8/4 W01/March 2017 Award in General Insurance

A2C Common subject-matter

For contribution to apply, each insurer must provide cover in respect of the subject-matter of insurance
which suffers loss or damage. This is frequently some form of property, but could equally apply to a legal
liability.

B Application of the principle of contribution

We have seen that insurers contribute to a claim on the basis of what is termed a rateable proportion.
Insurers contribute to
a claim on basis of
rateable proportion
B1 Rateable proportion
Rateable proportion is the share of any claim that an insurer pays when two or more cover the same risk;
usually in proportion to the respective sums insured. We are going to look at two possible ways of
determining the rateable proportion of a claim, namely:
• by sum insured; and
• by independent liability.
B1A Sum insured method

One method of calculating the rateable proportion of a loss is by apportioning it in line with the sums
insured under each policy. The rateable proportion is calculated using the formula:
policy sum insured × loss
total sum insured (all policies)

Example 8.1
Find a contribution condition on a standard fire policy and see how it is worded.
Policy A sum insured US$20,000
Policy B sum insured US$40,000 Reference copy for CII Face to Face Training
Total sum insured US$60,000
policy sum insured ×
total sum insured (all policies) loss

The proportion of the claim paid by policy A is:
20,000
= 1 3
60,000
Policy B pays:
8 40,000 = 2
Chapter 60,000 3

Question 8.2
Assuming a loss of US$15,000, how much would policy A pay and policy B pay to the policyholder if policy A has a
sum insured of US$20,000 and policy B a sum insured of US$30,000?

This method of assessing contribution is used for property policies which are not subject to average and
which have identical subject-matter. However, the sum insured method ignores the fact that different
restrictions, such as average (or an excess), may apply to each policy.