This case study is based on a real insurance claim. Certain details have been amended or removed to protect client confidentiality.
A care provider experienced significant damage to one of its buildings following an unexpected incident.
The organisation believed its property insurance would cover the cost of repairs. However, during the claims process it became apparent that the building's declared sum insured was substantially lower than the actual cost of rebuilding the property.
As a result, the insurer applied the Average Clause, reducing the claim settlement in proportion to the level of underinsurance.
The cost of repairs exceeded £10,000.
Following a review of the property, the insurer determined that the building had been insured for only a fraction of its true reinstatement value. The property was found to be approximately 80% underinsured.
Because of this, the insurer applied the Average Clause and significantly reduced the amount paid under the claim.
Cost of repairs: More than £10,000
Insurer settlement: Less than £2,000
Financial shortfall to the care provider: Nearly £9,000
Despite having insurance in place, the care provider was required to fund a substantial proportion of the repair costs itself.
Many care providers review their insurance policies each year but do not always review the sums insured attached to their buildings.
Changes in construction costs, inflation, labour rates and building materials can significantly increase the amount required to rebuild a property following a major loss.
Where a property is underinsured, insurers may apply the Average Clause. This means any claim settlement can be reduced in proportion to the level of underinsurance, leaving organisations unexpectedly exposed to substantial costs.
While this example involved a relatively modest claim, the financial consequences could have been far greater following a major fire, flood or other catastrophic event. Had this been a claim involving hundreds of thousands, or even millions of pounds in damage, the financial shortfall could have threatened the long-term stability of the organisation.
Underinsurance remains one of the most common issues identified during insurance reviews.
Regular reviews of building sums insured, supported by professional reinstatement cost assessments where appropriate, can help care providers understand whether their cover remains adequate.
Taking action before a claim occurs can help reduce the risk of unexpected costs and ensure insurance arrangements continue to reflect current rebuilding values.
If your building sums insured have not been reviewed recently, it may be worth seeking professional advice.
Quality Care Group works with care providers across the UK to help identify potential underinsurance risks and support informed insurance decisions.
To discuss your current insurance arrangements, contact our team today.
This case study is provided for general information only. Every claim is assessed on its own merits and outcomes will depend on individual circumstances, policy terms and insurer requirements.
