Average

Question 1

What is the application of Average?

Answer 1

The act of applying the average penalty when a PH has not insured for the full value

Question 2

What is the Pro-Rata Condition of Average?

Answer 2

1. Applies everytime there is underinsurance, no threshold

Question 3

What is the 85% condition of Average?

Answer 3

1. SI more than 85% of VAR then no UI
2. SI less than 85% of VAR then average applies

Question 4

Why do Insurers use the 85% rule? (3)

Answer 4

1. To prevent major UI
2. Ensure fairness in premium & claims
   3;. To encourage accurate reinstatement valuations (re-building cost, not market value)

Question 5

Average Calculation?

Answer 5

1. SI/VAR X 100 = % of cover
2. % of cover x loss = amount payable

Question 6

What about excess?

Answer 6

1. Policy usually silent
2. In line with contra proferetum rule, PH should always have more favourable option
3. Therefore, excess should be deducted from the agreed loss.