Some policies contain what is known as an Average or Co-Insurance clause. The unusual impact of these types of clauses is that if you underinsure i.e. Not insure to the full value or the amount of insurance limit purchased is inadequate, your claim may be reduced in proportion to the amount of the under-insurance.
For example:
| Full Replacement Value of Building | $1,000,000 |
| Sum Insured under the policy | $500,000 |
| Therefore you would be self insured for 50% of the full value | |
| Amount of claim, say | $100,000 |
| Amount payable by Insurers | $50,000 |
| as a result of the application of Average/Co-Insurance (being 50% of the $100,00) |
The average clause usually applies to:
Property Insurance;
Consequential Loss Insurance;
Areas that are always of concern to our clients are the adequacy or otherwise of:
Replacement Values for Assets;
Declaration of values for Consequential Loss of either Gross Profit, Gross Rentals and/or Additional Increased Costs of Working.
It is preferable that you:
Obtain periodical valuations by recognised quantity and building surveyors. Changes to the Building Code and Town Planning requirements need to be considered as part of any review or rebuilding costs;
Where previous valuations have been obtained when reviewing building values, make allowance for building cost increases since your last valuation, allowing for lead times for council approval and the like;
Take into account in respect of replacement costs for plant and machinery, increases in the cost of imports from some countries that can occur due to currency fluctuations. We recommend that you also take current and future inflationary trends into consideration in addition to import duties and effects on values of technological changes.