Underinsurance

Understand the idea

Building costs, contents values and business needs can change after a policy is arranged. If insured amounts are not updated, cover may fall short. A total loss can exceed the policy limit. For a partial loss, an applicable average clause can reduce the payment proportionately as well. The exact outcome depends on the wording, coverage basis, any allowed tolerance and other terms.

An example

Imagine a building requiring J$40 million to rebuild but insured for J$30 million on that same basis. The insured amount is 75% of the required value. Under a simple pro-rata average clause, a covered J$8 million partial loss could be reduced to J$6 million before the applicable deductible. These hypothetical values illustrate a particular clause, not the outcome of every property policy.

Sources

• JN General Insurance: Average clause and underinsurance
• CILA: Introduction to claims handling

In the news

Jamaican insurers report J$54.35 billion in Melissa payments; 983 claims remain