When each insurer covers a risk based on their policy limits, what is this known as?

The concept in question refers to the method by which multiple insurers share the responsibility for coverage of a risk, with each insurer providing coverage up to the limits specified in their individual policies. This sharing of risk is known as "pro-rata share."

In this arrangement, each insurer pays a portion of a claim based on the ratio of their coverage limit to the total coverage provided by all participating insurers. This ensures that the burden of a claim is distributed among the insurers in proportion to their respective commitments. As a result, if one insurer is responsible for a lower portion of the total policy limits, their financial responsibility is limited to that proportionate share.

Understanding this concept is essential in risk management and insurance transactions, allowing insured parties to obtain coverage from multiple insurers, thus enhancing the overall protection against potential losses while also managing the exposure of each insurer based on their stipulated limits.