How to get your property claim paid in full

We recently talked about a client who underinsured his photography equipment – and had a property claim.

Although he had around £30,000 worth of portable equipment (cameras, lenses, tripods etc) in total, he only took £5,000 worth of it out at any one time.

So he made that his level of cover.

When it was stolen, and he submitted a claim for £5,000, he had a bit of a problem. Due to something called 'average', our client's insurer refused to pay out the full £5,000 because, in their eyes, he was underinsured.

Our client didn't know he was doing anything wrong. Since the maximum he'd ever need to claim for was £5,000, he didn't see why he should pay extra for more cover. Unsurprisingly, he felt the whole thing was a little unfair considering he wasn't deliberately flouting the rules.

Read more about his property claim here.

What does the 'average rule' mean for your property claim? 

'Average' rule is the calculation an insurer uses to pay a claim where the level of cover is less than the value of property insured. 

It's actually a pretty simple equation, and it looks like this:

Payout = claim x sum insured ÷ current value

This means, if you've only insured a proportion of what you own, your insurer will pay claims by the same proportion. To put it another way, your insurer reduces property claim payments by the amount you're underinsured.

Depending on how much extra kit you haven't insured, that could have quite a big impact on your business.

Property claim examples

Let's say you have £15,000 worth of equipment cover. When you took out the policy, this was more than enough. You've since bought some more stuff, but haven't increased your level of insurance. Now, the cost of all your kit is closer to £20,000.

After a break in at your office, you try to claim for the full £15,000. However, after a quick inventory check, your insurer realises you're underinsured by £5,000; that's 25% of the actual sum you should be insured for.

Since you've only covered 75% of your property, your insurer will only pay 75% of the amount you want to claim for. In this situation, that's just £11,250.

Even if your claim isn’t as much as your level of cover, your insurer will still reduce the claim payment by the amount you're underinsured.

Why do insurers use the average rule? 

Insurers want to know about everything they might be covering. That includes things you don't think you'd replace if something happened to them.

The main reason insurers apply the 'average rule' is to deter people from deliberately underinsuring in an attempt to save money. If all their customers did this, insurance companies would struggle to cover all clients’ property claims.

As far as they're concerned, they're being asked to take on the risk of covering everything, without getting the necessary premium. That's the kind of maths insurers don't like.

What should I do? 

The one infallible rule is always be honest. Tot up everything you own and declare its total value to your insurer. Keep a record or inventory of everything; updating it as and when you add equipment (and not forgetting to tell your insurer, of course).

Have a look at your policy wording too because insurers' rules differ.

For example, one insurer we work with has this in their wording:

"If, at the time of damage, the amount insured is less than 85% of the total value of the contents, the amount we pay will be reduced in the same proportion as the underinsurance."

This allows some room for those who've underinsured accidentally.

If you have any doubts, it's always best to contact your broker. They'll let you know exactly what your policy says about underinsurance.

Depending on your policy, increasing your level of cover may also raise your premium. In any case, that's better than plan B: your insurer refusing to pay the full amount of your property claim.

Feel free to give us a call on 0345 222 5391 if you have any questions about underinsurance, or indeed the 'average rule'.

Photo by Josh Appel on Unsplash