01 / The meaning
What it means.
Australian commercial wordings often call this an average or underinsurance clause. It can affect a partial loss, not just the amount available after a total destruction. The calculation depends on the required valuation basis, any percentage tolerance, the relevant property grouping and the precise formula. A business should not assume a single percentage or calculation applies across every property policy.
Valuation errors can arise when equipment is recorded at depreciated book value while the policy requires a replacement basis. New fitouts, freight, installation costs and rising construction prices may also change the amount needed. Separate stock declarations and seasonal increases require their own review. This use of coinsurance is different from several insurers sharing a placement; both concepts can appear in the same insurance programme and should be explained separately.
02 / Put it in context
A practical example.
Hypothetical example: A workshop insures machinery using an old asset register. After a small fire, a valuation shows the policy’s required machinery value was substantially higher. An applicable average clause could reduce the assessed loss, subject to its formula and exceptions.
This example illustrates the term. It does not predict a claim outcome.
03 / Read the detail
What to check.
- Check the average clause’s formula, tolerance and exceptions.
- Check replacement estimates against the policy’s valuation basis.
- Check whether buildings, contents and stock are assessed separately.
04 / Start a useful conversation
A question for your broker.
Could inadequate declared values reduce a claim for only part of the property?
05 / Connect the terms
Keep the meaning in context.
06 / Apply it to your business
Related insurance guides.
Further reading
Read the source guidance alongside the relevant policy wording.
General information only. This does not take into account your objectives, financial situation or needs. Before acting, consider whether the information is appropriate for you. Cover is subject to insurer acceptance and the policy terms, conditions, limits and exclusions. Read the Financial Services Guide and the relevant PDS (where applicable) and/or policy wording before deciding.
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