H&M Renewal Form

AVERAGE (UNDERINSURANCE) DISCLAIMER

We at Gulf Insurance Ltd have made it our duty to ensure you, the client, are never blind-sided and are continuously involved in the workings of your policy with us. That being said, Gulf Insurance Ltd. would like to remind you that coverage is on an Indemnity basis. To understand what this means, it is important that you read the following:

Definition of Terms

• Average Clause – This clause penalizes you, the policyholder, if your property is under-insured.
• Excess – This is the amount of each and every loss/claim that is not covered by the policy and therefore is covered by the Insured.
• Indemnity – Indemnity, simply put, refers to a legal reimbursement principle that is agreed upon by means of a mutual contract between parties (e.g., the insured and the insurer). See below for further details
• Limits - maximum value to be derived from a policy
• Loss – physical damage to property or bodily injury, Including loss of use or loss of income
• Sum Insured – Value of the insured property/goods; it is recommended that the sum insured of a building include not only the exact building’s value, but debris removal, architect and surveyor’s fees etc.
• The Insurer – The insurance company (Gulf Insurance Ltd.)
• The Insured – The policy holder (you, the client)
• Value at Risk – Cost to rebuild at today’s prices

The main purpose of this literature is to ensure that the Insured understands how the application of ‘average’ works. However, in order to understand this, the insured must first understand indemnity. In insurance, indemnity aims to place the insured in the same financial position (after a loss) that he or she would have enjoyed immediately prior to the loss. In other words, the Insured shall get neither more nor less than the actual amount of loss sustained. This, of course, is always subject to the limit of the sum insured and is also subject to terms and conditions of the policy.

Under indemnity contracts, you the Insured should note that:

• Payments to the Insured do not go beyond the extent of the sum that is insured by the company, as not to provide an additional gain or profit by means of a loss.
• It is up to the Insurer to choose the means of compensating the Insured by means inclusive of cash, repairs, reinstatement, or replacement.

Traditionally, mishaps that tend to occur are the consequences of what can be referred to as under-insurance. What this means is the value that was attached to the property/goods insured, was less than its actual value at the time of the loss. The following list indicates the possible factors that may affect your indemnity payments or reimbursement:

• Limits on the policy for certain events or items (see your policy schedule)
• The application of any excess (as defined above) which is borne by the insured.
• Inadequate sum insured or limit of liability
• The application of ‘average’ which is used to combat under-insurance:
  

The example below shows the standard formula for calculating average in our policies:

In the example above, the Insurer only pays 80% of the claim due to the Sum Insured not being a complete reflection of the property’s Value at Risk, and as indicated prior, this is usually the consequence of undervaluing property when entering insurance. Therefore, to ensure your coverage and settlement is adequate, Gulf Insurance Ltd implores you to value your property with a professional valuation or appraisal at regular intervals, especially if improvements are done.

*Insurers normally accept 85% of the current value as full insurance and consider this sum as adequate for the sum insured; however, this condition is subject to decisions made by Gulf Insurance’s management.