Probable Maximum Loss
What Does Probable Maximum Loss Mean?
Probable maximum loss (PML) is a concept commonly used in property insurance, referring to an estimate of the maximum losses an insurer could face if the insured property is completely destroyed. Total losses may occur in the event of a catastrophic event, such as a fire completely razing a building.
Insuranceopedia Explains Probable Maximum Loss
Probable maximum loss is typically expressed as a dollar amount. For example, an insurance company might estimate that insuring a house could cost them $300,000 if it were completely destroyed. However, PML can also be expressed as a percentage of the total value of the insured property.
Insurance companies must calculate the probable maximum loss before agreeing to insure a property, as they need to understand the potential loss they could face in such an event. Knowing the PML also helps them determine appropriate premium rates.
