Buildings and Contents should always be insured for the amount it would cost to rebuild them. However, research shows that fewer than one in ten commercial properties in the UK are insured for the correct amount.

If you are under-insured, you will face a reduced payment in the event of a claim. Insurance claims payments can be reduced by hundreds of thousands of pounds due to under-insurance.

So it’s important not to undervalue the rebuild cost of your property or value of your contents when taking out a property insurance policy. Doing so could result in you being underinsured and in danger of having your claims subject to the ‘average clause’.

A claim that is subject to this clause will result in a much lower payout. It’s therefore important to make sure you have the right amount of insurance on your home and contents.



What is the average clause?


It is the norm for a clause referred to as ‘the average condition’ to be included in property insurance policies.

As a result of this clause, if the insurer discovers that you have underinsured your contents or the cost to rebuild your property, then they will reduce your payout when you file a claim.

To ensure that customers pay the correct premiums, the clause attempts to ensure that they accurately declare the contents and property value.



What happens if you are insured?


Your insurance provider will calculate the cost of your insurance premiums based on the value of your contents and the cost of rebuilding your building.

As a result, if you later lose everything in a fire and discover that you are not adequately covered, then you are underinsured. It is unlikely that your insurer will payout for the actual amount of the claim or loss and it will likely be significantly less, because they will rely on the ‘average clause’ in the policy to reduce the amount that they have to pay.



How does it work?


When you’re underinsured, the average clause ensures that the Insurers don’t have to make a full payout when only part of the premium was paid.

One of the first things an Insurer does, particularly on larger claims (but also on smaller claims as well), is carry out their own assessment of the cost of rebuilding a property. If they feel that the rebuild cost is higher than the sum which you have Insured under your policy with them they will reduce your claim payment in proportion to the under-insurance.

For example – if a building is insured for £1.5m and the actual cost of rebuilding is £2m, the Insurers will reduce the claims payment by 25%. So, if you have a claim that costs £200,000 the Insurers will only pay you £150,000 (a reduction of 25% in the actual cost of the claim of £200,000).



Assessing to Rebuild Cost of your Property


Getting someone to visit your property to carry out a professional assessment can be time-consuming and very expensive. However, thanks to our partnership with RebuildCostASSESSMENT.com we can offer you a reliable low-cost service from a ‘Regulated by RICS’ (Royal Institution of Chartered Surveyors) organisation.

You’ll receive a comprehensive Rebuild Cost Assessment (RCA) report guiding you on how much you should insure your buildings for.

The cost of this is very low in comparison to a RICS surveyor site visit.

This is a fantastic and affordable service which can protect your organisation from the potentially severe consequences of underinsurance.



Contact BIS Insurance today


If you would like more help or advice on your insurance cover, please feel free to contact us and we will be happy to help you further.

Llandudno Office: 01492 555 444
Bangor Office: 01248 665 300
Wrexham Office: 01978 804 200
Manchester Office: 0161 870 1183
Liverpool Office: 0151 203 1145
Lancashire Office: 01257 440 250
e: admin@bisinsurance.co.uk