Underinsurance and the ‘condition of average’ clause – Don’t be caught out!

What is the Condition of Average clause?

The condition of average clause is used in every insurance policy to protect not only property owners assets but also the insurance company and their customers. If a property owner has only paid part of the premium it means they will not receive a full insurance payment.

How does it work?

The average clause is applied when an insurance company has found a property owners insurance-value sum to be incorrect against their own valuation. It is in a property owners interest to investigate the terms of their policy as the value can vary significantly.

For example, many property owners will believe they have sufficient insurance cover if damages to their property have repairs costing £100,000 but their buildings total declared reinstatement insurance value is £1 million. However, if the insurance company determine the actual cost of rebuilding the property is £1.2 million, they have the right to claim there is inadequate cover in place and reduce the claim via a ‘condition of average clause’. This means the claim will be reduced by the same proportion as the amount ‘under’ insurance.

If a buildings Reinstatement Insurance Assessment is out of date or is reliant on historic data, reductions in the pay-out of claims can be as much as 50% which can have dreadful effects on property owners across the UK.

Therefore, it is crucial for property owners to ensure they have a Reinstatement Cost Assessment completed at least every 3 years to guarantee their asset is insured correctly. If you are in need of a Reinstatement Cost Assessment please get in contact with:

Adam Sukhon– Head of Reinstatement Cost Assessments | adam.sukhon@adair.co.uk

+44 (0)7809 678 387