Why is this a big concern and what is the condition of Average?
The setting of sums insured, indemnity limits and policy estimates is always your responsibility. We can advise you on how to obtain the necessary information but we cannot set sums insured, indemnity limits or value or appraise any property or assets.
Most policies include the condition of “Average” by which Insurers seek to counteract under-insurance. The condition makes you responsible for the percentage of the loss proportionate to the degree of under-insurance. e.g.
|Full Value||£ 100,000|
|Sum Insured||£ 70,000|
|Insurers Pay||Sum Insured
|x £ 10,000 (Loss)||= £ 7,000
(Less any policy excess)
|You bear||Under Insurance
|x £ 10,000 (Loss)||= £ 3,000|
For insurance on an Indemnity basis, if, in the event of a claim, under-insurance is found to exist, settlement is based on that proportion of the loss that the Sum Insured bears to the actual value of the property at the time of the loss, taking into account depreciation, wear and tear.
Where Insurance is on a Day One / reinstatement basis, settlement is based on that proportion of the loss that the “declared value” / sum insured at the date of the loss, bears to the cost of reinstating the whole of the property.
Thus, to avoid being penalised it is essential that Sums Insured are maintained at an adequate level.
Significant changes to the Building Regulations have seen the cost of rebuilding properties increase considerably over recent years.
What do I need to consider?
When considering insurance for your buildings, you should also consider the following which may have a significant factor on setting an adequate sum insured:
- Listed Buildings.
- Stone Buildings.
- Buildings built before 1920.
- Buildings never professionally valued.
- Buildings that were built “green”.
- Buildings that have been modified/extended.
- Buildings in an odd or difficult location.
- Buildings where no professional valuations have been carried out within the last 5 years.
- Properties with rare and elaborate features.
- Properties altered to cater for those with special needs.
- Properties with extensive external features.
- Valuations based upon the original developers costs.
- Valuations based upon the current market value.
This is a summary of where common pitfalls can occur and should assist in the prevention of under insurance.
Our important recommendation on preventing under insurance:
- Use a professionally qualified person/company to review your buildings sum insured.
- If your buildings are found to be under insured, please contact Rowlands & Hames Insurance Brokers to increase the sums insured accordingly at the earliest opportunity.
BIBA, the British Insurance Brokers’ Association, have compiled a guide on how to avoid under-insurance which is well worth a read. It can be viewed by clicking on the following button:
For more information on BIBA, please visit their website by clicking here.