British Insurance
Sir: Skinflint in City Diary (June 3) criticised insurance companies' attitudes to claims and what he referred to as their reluctance to pay in full on most occasions.
The circumstances of the parti cular case which was cited are not known to us but the subject of underinsurance is not simple and any comments we make must be generalisations. They may however help to clarify the position.
Lloyd's policies (and household policies issued in the Republic of Ireland) are subject to 'pro rata ' average, that is, where insurers would pay the proportion of any loss which the sum insured bears to the true value. In these circumstances, the application of the average condition would produce the result which Skinflint quoted in his example.
In Great Britain the insurance companies do not use an average clause in their household policies. Their policies are however subject to a full value declaration on the proposal form. The wordings may differ slightly from office to office but a specimem wording is as follows: "I declare that the sums to be insured on buildings/contents represent not less than the full value of the property and I agree to increase the sums insured if the full values materially increase during the currency of the insurance and I agree that this proposal and declaration are correct in every particular and will be the basis of the contract between the insurer and myself and shall be incorporated therein."
Where underinsurance is found to exist in the event of a claim, each case is considered on its merits. The attitude of the insurer will vary from company to company and ,from case to case. Treatment may vary from payment of a claim in full where underinsurance is small and unintentional to an ex gratia payment on a reduced scale where it is con siderable and there are grounds for believing it be be deliberate. There are however no formal rules applying along the lines mentioned in Skinflint's article.
R. C. Bardell
Secretary General, British Insu rance Association, Aldermary House, Queen Street, London EC4
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