THE AVERAGE CONDITION
INSURED VALUES (NRV) NEW REPLACEMENT VALUE
It is the responsibility of the Insured to ensure that values are correct and reflect new replacement value and should be projected for a year beyond the expiry date of the insurance period to take into account a loss which may occur at the end of the period of insurance.
WHAT IS AN AVERAGE CONDITION?
If a Sum Insured on an insurance policy is subject to Average, and the Sum Insured is less than the value at risk at the time of the loss, any claim will be reduced in the same proportion as the amount of under insurance that existed at the time of the loss.
EXAMPLE OF AVERAGE APPLYING TO A CLAIM
In this example we have a scenario where a building is insured for a sum of R1,000,000.00
At the time of a fire which causes R250,000.00 of damages to the property, Insurers have calculated that the building was actually valued at R1,100,000.00
There was therefore an amount of under insurance at the time of the loss, in this case 10{f92ed3c07130d1d1f7afdfa9419415a96097991b3cd0130fcc5c47b28583da4c}
The Average Condition would therefore apply, so the amount of the claim settlement would be reduced by the same percentage, again 10{f92ed3c07130d1d1f7afdfa9419415a96097991b3cd0130fcc5c47b28583da4c}.
WHY DO INSURERS APPLY AN AVERAGE CONDITION
The Average Condition is applied to try and ensure that policyholders insure for the correct values.
As most premiums are calculated on a rate applied to a sum insured the Insurers are keen to receive the correct premium for the risk that they are covering, hence this must be applied to the full Sum Insured at risk.
WHAT SECTIONS ARE SUBJECT TO THE AVERAGE CONDITION?
Buildings, Stock, Plant and Machinery Office Contents, Electronic Equipment, Business All Risks, Domestic House Contents, Domestic Buildings and Domestic All Risks.
If you require any further information regarding “average” or any short term insurance related product, please feel free to contact our offices directly on 011 023 7265.
