Underinsurance is a problem facing a variety of industries. In fact, it’s estimated that commercial buildings are only covered for an estimated 69% of their true reinstatement value, according to industry experts.

The Average Clause is an important stipulation to underinsurance for all businesses both in Scotland and the rest of the UK, including those operating in the care sector. Despite this, it often gets overlooked, potentially threatening the quality of care provided and causing huge financial shortfalls for a business.

Ensuring the safety and support for individuals receiving care to live and thrive with dignity is the number one priority. Understanding the Average Clause of your policy to ensure you have adequate cover is paramount to upholding this commitment, protecting your staff, residents and members of the public from a variety of risks.

For one of Scotland’s oldest insurance brokers, WH&R McCartney, care has been central to its ethos since it was established over 90 years ago. As a former family-run business, with members of the original founding family still embedded in the daily running of the firm, the company is committed to working with like-minded care providers, with matching family values.

Alan Kirkwood, Director at WH&R McCartney, explains: “Most property insurance policies will likely include an Average Clause – this is a clause for an insurer to payout a proportionate amount for what you are claiming, based on how much you are underinsured by.

“For example, a care home might be insured for £10 million, but a true rebuild cost is more like £15 million – this care provider is underinsured by one third. So, when they needed to make a claim on some fire damage, at approximately £3 million, the insurer would only cover the costs of the initial two thirds of the claim, leaving the care home to self-fund for the remaining million.

“In this way, the Average Clause is a bit of a curse. If applied on a claim, it can lead to a financial shortfall, which might disrupt the normal running of the business, impact care home residents and even result in closure.

“At a time where the UK’s care facilities are already under financial, social and legislative scrutiny, its important they can feel empowered to provide a continuity of care for those in need.”

Underinsurance happens because of several reasons, many of which are out of the control of the care provider. For example, rising construction costs, outdated rebuild valuations and costs associated with compliance to new regulations are all factors influencing the value of your business. To ensure you can deliver exemplary care for your residents, its important you review the total sum insured with a specialist broker.

Kirkwood continued: “Crucially, we can help those who have been let down by other insurance companies, who haven’t necessarily made policyholders aware of the Average Clause and how it could impact their entitlement. Perhaps they have made a claim on their care home policy and have realised too late they could’ve been entitled to more.

“To mitigate the risk of underinsurance, a trusted broker can manage the complex administration so you can focus on delivering a high level of care. Whether it’s adjusting policies for inflation, accounting for all rebuild costs or providing the necessary legal counsel, a broker can act quickly on your behalf for complex claims to minimise business disruption and save on costs. Ultimately, this approach ensures that extra layer of care for your facility, staff and residents.”

Based in Motherwell, Lanarkshire, the company is now owned by global fintech company, Acrisure alongside Glasgow-based Affinity Brokers Ltd. Since 2018, Acrisure has acquired 16 businesses in the UK, strengthening our ability to provide expert advice and tailored insurance solutions.

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