What happens if actual cash value of property increases and amount of insurance owned remains level?
If the building increases in value, because of inflation, and the insurance is not increased correspondingly, the coinsurance deficiency (self-insured on part of insured) becomes greater. For example: Suppose that, the value of the building increased from Baht3,000,000 to Baht4,500,000. If the insurance is not increased proportionately, the deficiency would increase from Baht600,000 to Baht1,800,000 because Baht3,600,000 of insurance (80 percent of Baht4,500,000) would now be required (Baht3,600,000 – Baht1,800,000 = Baht1,800,000 or self-insured). If a loss of Baht320,000 were to occur under the new value, the insurer and the insured both would bear half, for each is responsible for Baht1,800,000 of insurance. The insured now has a 50 percent deficiency in coverage and must bear 50 percent of the loss.
