CLAIMS & POLICY MECHANICS
Average (non-marine) definition
Average in non-marine insurance is a property insurance condition that reduces claim payments when the insured has under-declared the value at risk.
In practice, this means in non-marine insurance, average is used in property business to protect insurers against the possibility that the insured has under-declared the value of the insured property. Average allows an insurer to reduce its claims payment in proportion to the amount for which the property was underinsured when cover was taken out. This gives insurers, brokers, reinsurers and risk managers a shared way to discuss the concept when reviewing policies, claims, regulation or market data.
This term is especially useful in property insurance, commercial insurance and claims assessment. It helps determine how much the insurer may pay and how much risk remains with the insured. It also helps users compare how insurance is structured, regulated, priced or claimed across different markets.
Average (non-marine) is closely related to underinsurance, sum insured, condition of average and property insurance. Linking these concepts together helps build a clearer glossary structure and gives readers a stronger understanding of how individual insurance terms connect within wider international insurance practice.
At a glance
- Used in
- Property insurance, commercial insurance and claims assessment.
- Purpose
- Helps determine how much the insurer may pay and how much risk remains with the insured.
- Important because
- Small differences in policy limits, values and retained amounts can materially affect claim outcomes.
- Related terms
- underinsurance, sum insured, condition of average and property insurance.
Example of average in non-marine insurance
A building is insured for less than its true replacement value. After a partial loss, the insurer applies average and reduces the claim payment in proportion to the underinsurance.