BrokerExamIn both insurer wordings worked through below, a co-insurance clause pays a partial loss in proportion: the amount of insurance the client carries, over the amount the clause required them to carry. Carry less and the insurer pays only that fraction of the loss, even when the loss is far below the policy limit. The Registered Insurance Brokers of Ontario (RIBO) lists “Co-insurance clauses, penalties, and the concepts that it applies to (e.g., basic calculations)” in the habitational part of its Level 1 competency profile and blueprint, and names calculating co-insurance as a math skill in the same document.
The wording of the clause is the insurer’s. What follows works the calculation from two insurers’ published wordings, each named, and from a regulator’s fact sheet for the formula. Another insurer’s wording will differ, and every dollar figure in the examples is invented for this page.
The clause in a commercial property form
The first wording is the Commercial Property Named Perils Form C100 (wording effective June 2006) in My Mutual Insurance’s 2025 book of commercial wordings. Its clause 4 requires the insured to carry insurance of “at least the amount produced by multiplying the actual cash value of the property by the co-insurance percentage” shown on the Declaration Page. An insured who falls short is entitled to recover only the portion of any loss “that the amount of insurance in force at the time of loss bears to the amount of insurance required to be maintained”.
Three things in that wording decide the arithmetic:
- The value is the property’s actual cash value, multiplied by the percentage to give the amount the insured has to carry.
- The percentage is on the Declaration Page, and the clause applies separately to each item that has one.
- Small losses are left alone. C100 applies the clause only where the total loss exceeds a threshold the form sets. Every loss in the C100 examples below is above it.
The formula
The Chambre de l’assurance de dommages, the Quebec regulator of damage insurance representatives, publishes a fact sheet (April 2023) that sets out the formula a claims adjuster uses on a partial loss. Put in this page’s words:
payment = amount carried × (damage − deductible) ÷ amount required
The amount required is the value of the property times the co-insurance percentage. The fact sheet takes the deductible off the damages first, and says so in a note: the deductible comes off the amount of the damages “and not at the very end of the calculation”. The fact sheet is written for Quebec, and what it says about a contract that names no percentage is Quebec law, so it is left out here. The arithmetic is the same anywhere.
Worked through
An illustration, with numbers invented for this page. A client’s commercial building has an actual cash value of $1,000,000 at the time of a fire. The Declaration Page shows an 80 percent co-insurance percentage and a $5,000 deductible, and the building is insured for $600,000.
| Step | Figure |
|---|---|
| Amount required: $1,000,000 × 80% | $800,000 |
| Amount carried | $600,000 |
| Fraction the insurer pays: $600,000 ÷ $800,000 | 0.75 |
| Damage | $200,000 |
| Damage less deductible | $195,000 |
| Payment: $195,000 × 0.75 | $146,250 |
The client carries $48,750 of a $195,000 claim, on a building insured for three times the damage.
The order of the deductible changes the answer. Take the fraction first and the deductible last and the same loss pays $150,000 less $5,000, which is $145,000. C100’s deductible clause (clause 3) and its co-insurance clause (clause 4) do not say which comes first. The fact sheet’s order is the one above. On a real claim the policy’s own wording decides, so read it.
The limit still caps the payment. C100’s insuring agreement pays no more than the least of the actual cash value, the insured’s interest and the amount of insurance on the Declaration Page. Say the same building suffers $850,000 of damage. The fraction gives $845,000 × 0.75, which is $633,750, but the building is insured for $600,000, so $600,000 is the most the insurer pays. Take the deductible off last instead, and a loss the limit caps pays the limit less the deductible: $595,000 here.
Carrying the required amount removes the penalty. Insure the same building for $800,000 and the fraction is 1: the $200,000 loss pays $195,000, the damage less the deductible. C100 reduces a payment only for an insured who has failed to carry the amount the clause requires.
Check the answer against the limit
RIBO’s Level 1 sample questions include three co-insurance losses worked to a dollar figure: Questions 28, 61 and 70. Work each one yourself before reading the key. In each, the fraction applied to the loss comes out above the amount of insurance, so the limit matters as much as the fraction. RIBO prints the correct option but not the working, so it has not said in which order it took the deductible and the limit. Both the habitational and commercial practice sections here have co-insurance questions.
The same calculation in a home policy endorsement
The second wording is the habitational policy wording H177 (October 2022) of Sandbox Mutual Insurance Company, a Saskatchewan insurer. Its general co-insurance clause is an endorsement, End. #31, and it applies only “If the Coverage Summary page specifies” co-insurance. The insurer then pays no greater proportion of a loss than the amount of insurance bears to 80 percent, or the other percentage stated on the Coverage Summary page, of one of two values:
- the actual cash value of the property at the time of the loss, or
- the replacement cost at the time of the loss, if the property is insured for replacement cost.
RIBO’s sample Question 69 is on co-insurance in a replacement cost policy; work it yourself before reading the key. An illustration of the second point: a house with a replacement cost of $500,000, insured for replacement cost at $300,000, under End. #31 at 80 percent. The required amount is $400,000, the fraction is 0.75, and a $40,000 loss pays $30,000 before the deductible question above.
H177 is one insurer’s wording for one province, and another insurer’s endorsement will differ.
The warning Ontario requires on the policy
Part IV of Ontario’s Insurance Act governs fire insurance on property, with the exceptions in s. 143. Within it, s. 149 has one rule about the clause itself. A contract containing “a co-insurance, average or similar clause” must carry on its face, in red ink or bold type, the words “The policy contains a clause that may limit the amount payable”, or the French equivalent, “failing which the clause is not binding upon the insured”. The same section covers a deductible clause.
The broker in the fact sheet
The fact sheet, written for Quebec clients, puts the broker in the middle of it: “Your agent or broker must explain to you the risks of being underinsured”. It also tells the client to notify the agent or broker of any change in the property’s value during the term, and to choose the amount of insurance with the property’s value in mind, ideally as a professional appraiser sets it.