Have you had an insurance claim reduced because of the Average Clause being applied?

Average Clause is applied when your insurance company has found your insurance-value sum to be incorrect to their own valuation. The value can vary dramatically so it is in your interest to investigate the terms of your policy.

Condition of Average

Condition of Average is a clause in every insurance policy, which is there to protect not only your own assets, but the insurance company and their other customers too. It ensures you don’t receive a full insurance payment when you have only paid part of the premium.

How does it work?

If fire damages a property causing repairs costing £100,000 and the building’s total declared reinstatement insurance value is £1 million – most owners assume they have more than adequate cover.

However, if the insurer can establish the actual cost to rebuild the property is £1.2 million they can potentially claim there is inadequate cover in place and reduce the claim via a ‘condition of average’ clause. The claim will be reduced by the same proportion as the amount of ‘under’ insurance.

Reductions in the payout of claims can be as much as 50% which is devastating to a business owner. This typically occurs when the Reinstatement Insurance Assessment for a building is out of date or has relied on historic data.

Why is it applied?

The Average Clause is there to encourage insurance customers to declare honest values when insuring their valuables. It is also there to ensure a fair premium is always contributed into the pool of premiums from which everyone’s claims are paid.

The Special Condition of Average

Insurers understand that valuations can vary during a policy period, especially when it involves property. To counteract this, they may apply a Special Condition of Average which states that the Average will only be applied if the proportion of Average (Sum Insured/Real value) falls below a certain percentage (such as 75%).

Are you looking to challenge the Insurer’s decision?

If you believe you have the right to challenge an Insurer’s Condition of Average decision, or would like some advice on your insurance cover, get in touch with us on 01476 434050 and we’ll be happy to help.