A tool designed to determine equitable distribution of funds in situations where insurance coverage is insufficient to cover all losses or claims. It operates on the principle of proportionality, allocating the available settlement amount to each claimant based on a pre-determined percentage of their total claim value. For example, if total claims against a policy amount to $200,000 and the policy limit is $100,000, each claimant would receive 50% of their individual claim.
This type of calculation ensures fairness and transparency in the settlement process when dealing with limited insurance resources. It provides a systematic approach to dividing the available funds, preventing arbitrary or biased distribution. Historically, methods for allocating limited insurance funds were often subject to dispute and potential litigation. Implementing a proportional allocation streamlines the procedure, reduces potential conflicts between claimants, and offers a more predictable outcome.
