The ABC Corporation has $100,000 coverage on its building through Company A, and $50,000 through Company B. When a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay?

When applying the pro rata method to determine how much each insurer will pay in the event of a loss, the total insurance coverage is first identified. In this scenario, the total coverage consists of $100,000 from Company A and $50,000 from Company B, which sums up to $150,000.

Next, the proportion of coverage provided by each insurer is calculated. For Company A, the ratio is $100,000 (its coverage) divided by $150,000 (total coverage), which results in a proportion of 2/3. For Company B, the ratio is $50,000 (its coverage) divided by $150,000 (total coverage), leading to a proportion of 1/3.

When a loss of $24,000 occurs, the amount each insurer pays is determined by multiplying the loss by their respective ratios.

• For Company A: (2/3) of $24,000 equals $16,000.

• For Company B: (1/3) of $24,000 equals $8,000.

Thus, using the pro rata method, Company A will pay $16,000, and Company B will pay $8,000, making the total