Condition of average is the insurance term used when calculating a payout against a claim where the policy undervalues the sum insured. In the event of loss, the amount paid against a claim will be in the same proportion as the value of the underinsurance.
Where a building’s insurance policy is subject to average, underinsurance can result in very high liabilities on the owner. For example, if a flood or fire causes R3M of partial damage, the building is insured for R5M, but its true value is determined to be R10M, the payout will be:
This would leave the owner with an underinsurance shortfall of R1.5M.
Read article https://mirfin.co.za/blog/common-customer-complaints/
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