Coinsurance and risk layering

For policies on commercial lines of business, insurers often use coinsurance and risk layering to insure risks that are too large for one insurer to cover. For example, a policy that covers a fleet of commercial aircraft uses this model.

In a coinsurance model, several insurers agree to each cover part of a large risk. For example, Insurer A covers 60% of the risk while Insurer B covers 40%.

Coinsurance is typically used with risk layering. Risk layering is applied to a tower, or a set of coverages that are of the same business class. For example, a policy has a tower for property coverages and another for liability coverages. In APD, you specify the business class by applying the section type defined in the SectionType typelist to a clause category.

If you enable coinsurance and risk layering for a product in APD, you can implement a coinsurance and risk layering model when you create a submission in PolicyCenter. In the submission you can:
  • Create a tower that represents the coverages for a business class such as liability.
  • Create risk layers on the tower that specify the limit and excess for each layer.
  • Coinsure a tower or one or more of its layers.

Enable coinsurance and risk layering

About this task

Enable coinsurance and risk layering in APD App and then on the Submission screens in PolicyCenter. For more information about enabling coinsurance and risk layering in PolicyCenter, see PolicyCenter Application Guide.

Procedure

  1. Apply a section type to the appropriate coverages.
    1. Edit any coverage.
    2. In Element Details, click Manage Clause Categories.
    3. Edit the appropriate clause category.
    4. In Element Details, in Section Type, copy and paste the code from PolicyCenter.
  2. Enable coinsurance and risk layering.
    1. On the Product Model screen, in the navigation pane, select the product.
    2. Choose Edit from the product's vertical ellipsis menu.
    3. In Element Details, check Coinsured and Risk Layering.

Excess of Loss Curve Parameter

For visualized products, the Excess of Loss Curve Parameter field on the Billing screen corresponds to the XOLCurveParameter property on the APDPricing entity. The XOLCurveParameter property is a rate property that enables you to specify a decimal value that can be used by custom code to implement rating curve logic for rating layered risks.

Risk layers are a mechanism by which insurers can jointly participate on a single policy period by accepting risk only for certain ranges of claim amounts. For example, an insurer might accept the first $50,000 of risk, but not the next $100,000, but then accept the next $1,000,000 of risk after that. Risk layers can be coinsured. For more information about coinsurance and risk layering in PolicyCenter, see PolicyCenter Application Guide.

Risk layering supports a simple rating implementation; it does not use Cloud Rating. This rating implementation proportionally assigns costs to each layer based on the size of the layer (the monetary amount band that is being covered). If you want to implement more complex rating curves to assign the correct costs to each layer, for example an SR5i rating curve, use the XOLCurveParameter property on the APDPricing entity to configure this behavior. You must also extend the entity model for installed products to specify this parameter on the manual pricing entities.