Towergate Insurance – What does the ‘Average clause’ mean for my care organisation?

A message from Towergate

What does the ‘Average clause’ mean for my care organisation?

It sounds innocuous enough, but the truth is that the Average clause can have far-reaching consequences for unsuspecting care organisations – yet many businesses are unfamiliar with it and the havoc it can wreak.

In the first of our jargon buster series, we look at what the Average clause means and, more importantly, why you should care.

The silent phenomenon of underinsurance

The Average clause is closely associated with underinsurance. But what is underinsurance?

Simply put, underinsurance is when you aren’t covered for what you believe you are covered for. This can have far-reaching consequences for any business, particularly when considering that people don’t tend to know they are underinsured – instead, people usually only discover they are underinsured when they go to make a claim and their claim is either rejected, or pays out far less than they had imagined.

When an insurer finds that a claimant is underinsured, they enact something known as the ‘Average clause’, which significantly reduces your final payout.

Imagine that your care home cost £200,000 to rebuild, but it was only insured for half that amount at £100,000. If you made a claim for a total property loss – e.g. if a fire burned down the home – the insurer would enact the average clause and pay out a maximum of £100,000 because you didn’t have enough cover to begin with. This means that you would be on the hook for the rest of the funds needed for the repair yourself.

Did you find this update useful? Keep an eye out for the others in the jargon buster series, where we demystify insurance terms that commonly trip up care organisations.

View Care England and Towergate’s Comprehensive Report on Navigating Insurance and Mitigating Risks for the Care Sector – click here

Join the Towergate webinar: Navigating Insurance & Mitigating Risks for the Care Sector

Monday 19th May 11:00 to 12:00

Click here for further details and to register.

Curious about how Towergate can assist your business?

Contact Richard Barnes on 07768 314 298 or email him: Richard.barnes@towergate.co.uk

Towergate is a trading name of Advisory Insurance Brokers Limited. Registered in England No.4043759. Registered Address: 2 Minster Court, Mincing Lane, London EC3R 7PD. Authorised and regulated by the Financial Conduct Authority.