Your ‘Average’ Claim

Commercial (farm) insurance policies are subject to a number of terms and conditions, one of which is the policy condition of Average. This condition sets out Insurers’ liability in the event of a claim if it is established by the Loss Adjuster that underinsurance is prevalent at the time of the loss.  The condition of Average normally has a degree of tolerance and on most farm building claims as an example, if the sum insured is 85% adequate at the time of a loss, the Policyholder will receive the full benefit of the policy, subject to maximum payable standing at the sum insured.

In relation to produce/deadstock/livestock, farm policies are subject to a Special Condition of Average, whereby there is greater tolerance to underinsurance and if the sum insured is 75% adequate at the time of the loss, the claim will be paid in full, subject to the maximum payable standing at the sum insured, whilst there may be some inner limits for individual animals.  This Special Condition of Average gives the farmer a degree of flexibility, given that stock holdings and values of farm goods will fluctuate significantly throughout the farming year. 

If sums insured are outside these levels of tolerance, Insurers are obliged to pay the claim, subject to ‘Average’, whereby a ratable proportion of the claim is paid, comparing the sum insured at the time of the loss to the true value that was at risk on the day of the incident.  For example, if a building was insured for £100,000 and the correct rebuilding cost is assessed at £200,000, 50% of the claim value is payable by the Insurer (subject to further deduction of the policy excess), summarised as follows:-

It is therefore strongly recommended that regular reviews of cover are undertaken to ensure that Average is not applied at the time of a claim.  Check with your Greenlands’ Agent to confirm the basis of cover for the property that you wish to insure and, if in doubt, seek a professional valuation for buildings.  Once this is done, sums insured will be indexed to provide future protection against underinsurance.