Hierarchical Limit Processing for Child Policy Coverages

In a nested policy coverage structure, a parent coverage defines overarching limits for its child coverages that draw from a common resource pool. For example, a Structural Damage coverage can be under Property Damage, which is itself under the root Commercial Insurance product. Claim payments on the Structural Damage and Water Damage coverages erode the Property Damage limits. The Property Damage limits, in turn, cap the claim payments on the child coverages.

Commercial Insurance (root)
├── Property Damage
│   ├── Structural Damage
│   └── Water Damage
└── Liability
    └── General Liability

With hierarchical limit processing, when you open a claim coverage for an exposure against a child policy coverage, Claims Management resolves the full parent chain in the coverage hierarchy. A claim payment on the child coverage, represented by a claim coverage payment detail record, consumes its deductible, copay, coinsurance, and out-of-pocket maximum limits along with the monetary and count limits. The claim payment also consumes an amount or units from the monetary and count limits of the parent and other coverages up the hierarchy. This workflow adjusts the claim amount by applying the parent and higher coverage limits, and updates limits at each level in the coverage hierarchy without manual intervention.

When child and higher-level coverages include a benefit of the same name, a claim payment against the benefit reduces the benefit limits at each level in the hierarchy by the same amount or unit count. However, the reduction doesn't indicate duplicate charges but shows the change in the benefit limits due to the single claim payment.

The Claims Financials dashboard shows you the limit consumption for the child coverage and its overarching coverages in the hierarchy. The dashboard prefixes affected limits from the parent and higher-levels with the respective coverage names to distinguish them from the child coverage limits.

Configure hierarchical limit processing for insurance root products that have coverage hierarchies with parent-child relationships. Without hierarchical limit processing, by default, a claim payment for a child coverage consumes limits for that coverage and the root coverage.

Example: Hierarchical Limit Consumption in a Commercial Property Policy

Consider a commercial property policy with this coverage structure:

• Commercial Insurance (root) — limit of $50,000
• Property Damage (parent) — limit of $20,000
• Structural Damage (child) — limit of $5,000

A claims adjuster creates a claim for $200 on the Structural Damage coverage. With hierarchical limit consumption enabled, the system automatically deducts $200 from each of these limits:

• Structural Damage limit (child) — $200 consumed
• Property Damage limit (parent) — $200 consumed
• Commercial Insurance limit (root) — $200 consumed

All three consumption entries happen in a single transaction, without the adjuster taking any extra steps.

• Considerations for Hierarchical Limit Processing
  Review these considerations before you configure and use hierarchical limit processing for an insurance root product.
• Configure Hierarchical Limit Processing
  Configure hierarchical limit processing for a root product so that a claim payment on a child coverage complies with and consumes parent and higher-level limits in the coverage hierarchy. To turn on hierarchical limit processing, create a record for the root product in the InsPlcyLimitConsumptionRule Tooling API object.