What is the insurance provision that helps to lower rates when insured values are close to property values?

The insurance provision that helps to lower rates when insured values are close to property values is coinsurance. This provision typically requires policyholders to insure their property for a certain percentage (often 80%, 90%, or 100%) of its actual cash value or replacement cost to avoid penalties in the event of a loss. When policyholders meet this requirement, they are often rewarded with lower premiums because they are more accurately reflecting the risk associated with the insured property.

Coinsurance promotes adequate coverage, incentivizing insured parties to insure their property closer to its actual value, which can lead to more equitable risk pooled among insurers. If a property is underinsured, any claims may be subject to reduction based on the percentage of coverage they maintain relative to the total value, thus encouraging people to purchase appropriate levels of coverage and lowering rates for those who comply.

The other options do not serve this purpose: subrogation refers to the insurer’s right to pursue a third party responsible for a loss after paying a claim; other insurance identifies potential overlap when multiple policies cover the same risk; and proration is used to allocate liable amounts among multiple policies or insurers.