Maximum Probable Loss

What Does Maximum Probable Loss Mean?

The Maximum Probable Loss (MPL) is the greatest loss an insurance policyholder can reasonably expect to face if a specific event, such as a fire, were to occur.

Maximum probable losses are generally inversely proportional to the size of the insured structure or property. This means that the larger a property is, the more difficult it is to completely destroy, leading to a lower probability of a total loss. For commercial buildings, owners often need to look at different types of commercial property insurance so that the structure, contents, and stock are each covered at appropriate limits given their MPL figures.

Insuranceopedia Explains Maximum Probable Loss

It is crucial for insurance companies to be aware of the Maximum Probable Loss (MPL) for their policies, as these figures help them assess the potential financial risk associated with each policy. If an insurance company determines that the MPL for a particular asset is too high, they may choose not to insure the asset or decide not to renew the policy upon its expiration in order to protect their profitability. Homeowners whose properties carry a high MPL because of location, age, or hazard exposure sometimes get turned down by standard carriers and end up shopping for high-risk homeowners insurance instead.