What type of risk does the concept of "coinsurance" in property insurance primarily relate to?

Coinsurance is a concept in property insurance that primarily relates to partial loss valuation. It is a provision in an insurance policy that requires a property owner to insure their property for a specified percentage of its total value, typically around 80% or more. If the insured property’s value is less than this required amount, the policyholder may not receive the full amount of their loss in the event of a claim.

For example, if a property is valued at $200,000 and the coinsurance requirement is set at 80%, the policyholder must carry at least $160,000 in coverage to meet the coinsurance clause. If they only carry $100,000, which is less than the required amount, and suffer a partial loss, the insurance payout will be reduced based on the ratio of insurance carried to the amount required. This ensures that policyholders keep their insurance in line with the current value of their property, incentivizing them to properly insure their assets and reducing the risk for the insurer.

This concept heavily affects how partial losses are valued and compensated when claims are made, making it crucial for property owners to understand and adhere to these coinsurance requirements in their policies.