The Average Clause — How It Reduces Your Claim
Most commercial and landlord property insurance policies include an Average Clause.
This clause allows the insurer to proportionally reduce your claim payout if you’re underinsured.
Even a partial loss will be scaled down to reflect the percentage of underinsurance.
Example:
| Scenario | Amount |
| True rebuild cost | £1,000,000 |
| Sum insured | £600,000 |
| Fire damage | £200,000 |
| Payout (60% of true value) | £120,000 |
| Shortfall to be paid by policyholder | £80,000 |
Even though the claim is partial, you only receive 60% of the payout because your building was insured for 60% of its true value.
Listed & Heritage Buildings — Even More Critical
Listed and historic properties are particularly at risk because their rebuild costs are often much higher than their market value.
Reasons include:
- Specialist materials (e.g., lime render, stonework, handmade tiles)
- Scarce craftsmanship and extended rebuild times
- Heritage regulations that restrict modern building methods
If underinsured, property owners may:
- Need to personally fund a large portion of reinstatement
- Breach mortgage or lender conditions
- Face long project delays while finding additional funds
Common Mistakes That Lead to Underinsurance
- Confusing market value with rebuild cost
- Using valuations that are more than five years old
- Failing to update sums insured after building works
- Forgetting listed status or conservation restrictions
How to Avoid Underinsurance
1. Get a Professional Rebuild Cost Assessment
- Use a RICS-accredited surveyor for a reinstatement valuation.
- This is not the same as market value or purchase price.
- Recommended every 3–5 years, or sooner if:
- You’ve carried out extensions or refurbishments.
- Construction costs or inflation have changed significantly.
2. Insure for Full Rebuild Value
Include:
- Demolition and debris removal
- Site clearance and professional fees (architects, engineers, planning)
- Index-linking to account for inflation between renewals
3. Review Annually
Include:
- Don’t renew based on last year’s figures.
- Review with your broker to ensure your sum insured reflects current rebuild rates.
How SRS Insurance Can Help
At SRS Insurance, we work with landlords, property owners, and managing agents to ensure assets are properly protected.
We can:
- Review your current sums insured for adequacy
- Arrange professional RICS rebuild valuations
- Negotiate with insurers for index-linking and clause flexibility
- Provide guidance on heritage and listed building reinstatement risks
Our goal is to ensure you’re never caught short in the event of a claim.