Underinsurance Clause - Property & Business Interruption
Once a loss occurs it is important to obtain a thorough understanding of the insurance cover and how it responds.
This includes the underinsurance clause.
Most underinsurance clauses indicate that it is necessary to test whether the amount insured is adequate. If so, the insurance cover responds in full. If not, a penalty is imposed.
In many Business Interruption Policies the penalty reduces the Policyholder’s liability to the proportion of the risk which has been insured. For example, if the declared value represents 80% of the risk which should have been insured, the insurance policy responds to 80% of the loss.
Many policies covering property often provide a margin before the underinsurance penalty applies.
The underinsurance clause exists to ensure that the Insurer receives sufficient premium from clients to meet claims. In other words it ensures that the insurer does not pay claims in excess of the premium collected and risk covered.
Some Policyholders obtain independent valuations at renewal to ensure the amount insured for property is correct. Similarly independent advice on the amount of cover required for Business Interruption may be obtained.
In these instances the Insurer may be satisfied that sufficient premium has been collected and it may be appropriate to delete the underinsurance clause.
Author
Published with permission of Claim Solutions Pty Ltd.
Insurance Policy
Country: - Australia.
Policy Description: - Industrial Special Risks and many Composite or Businesspack type policies.
Insurer: - Various.
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