Insurance Condition of Average

Insurers apply the insurance condition of average when your sums insured are inadequate to cover the actual values at risk.

That is, in the event that your sums insured are inadequate in relation to the actual values at risk then the insurers apply this condition and you will be required to bear a rateable proportion of the loss.

For example, if you insure for only half the value of the property at risk you will be entitled to recover only half of your loss, whatever that loss may be, as follows:-

Sum Insured = 5,000,000
Actual Value at risk = 10,000,000
Amount of Loss = 2,500,000

Insurer will pay (5,000,000 ÷ 10,000,000) x 2,500,000 = 1,250,000

Hence, Uninsured Loss = 1,250,000

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