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Considered one form of blanket limits, block limits are limitations on the total amount of compensation that insurance companies will pay out on claims associated with covered events that occur in a single city block. The limits are based on a number of factors that allow the insurance company to calculate a rating for the block and determine the maximum amount of coverage the company is willing to underwrite for property owners within the defined area. Once a very common process, many companies have chosen to remove block limits since the latter part of the 20th century and will not underwrite coverage based on the circumstances of the individual customer.
Determining the amount of block limits for a given city block would typically involve evaluating not only the property found on the block but also the nature of the buildings and business operations that were present at the location. Other factors, such as the crime rate in the area, would also be taken into account. Using this data, the insurance company could develop a rating for the block and use that as a guideline in underwriting insurance for customers owning property in the area. Once the maximum amount specified by the rating was reached, the company would no longer underwrite additional policies for any property found on that particular block.
The purpose of block limits was to protect the interests of the insurance company while still making it possible to solicit business from property owners. By placing a limit on the amount of coverage the company would extend to all customers on a given city block, the provider effectively limited how much it would pay out in claims should some major disaster adversely affect every customer on that block. In theory, this would mean that even in the worst case scenario, the insurer would remain financially solvent and be able to honor those claims once they had been properly investigated and approved.
While block limits are not as common as in the past, this process is still in use, especially in urban areas. Since insurance laws vary somewhat from one country to the next, the exact process for determining the limits on insurance coverage and claim payouts per city block will comply with the regulations that prevail in a given nation. Insurance agents are aware of whether or not block limits apply to a given city block and can advise potential customers of the maximum amount of insurance they are prepared to underwrite.
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