Question $107$

Bernard's Bowling has a commercial property policy with an $80$ percent coinsurance provision. The limit of insurance on the building is the same as its estimated value: $$1$ million. However, Bernard feels that there is no need for a $$1$ million limit of insurance since the sprinkler system should quickly extinguish a fire. To save premium, he wants to drop the limit of insurance on the building from $$1$ million down to $$100,000.$ If Bernard asks your advice as an adjuster, you should tell him that

He should hire an insurance actuary to determine the probable yearly loss before making a decision to lower the limit of insurance so drastically.

This would be a good way to reduce premium costs.

He should have the sprinkler system inspected to be sure that it is operating correctly before making a decision to lower the limit of insurance so drastically.

Dropping the building limit to only $$100,000$ would subject him to a severe coinsurance penalty in the event of loss.