INSURANCE. THE CONDITION OF AVERAGE
[COMMUNICATED.]
To the layman in Insurance matters the Average Clause and its effect is not always clear, and this being the case an explanation in as simple terms as possible with illus- trations of the working of the clause in practice may not be out of place before examining more fully the question whether the condition should not be more fully applied to the advantage of both Insurers and Insurance Com- panies. APPLICATION OF THE AVERAGE CLAUSE.
The ordinary condition of average can be explained as a condition under which an Insurer who does not take out Insurance cover for the full value of the insured property becomes his own insurer for the difference between the amount insured and the full value. For example—assuming the value of the property to be £20,000 and the amount insured to be 115,000, and the condition of average to be in force, what would be the result (a) in the event of a total loss by fire and (b) in the event of a partial loss to the extent of say £10,000? In the case of (a) the Insurance Company would pay the full amount insured under the policy, namely, £15,000 and the Insured would lose £5,000 on his own account. In the case of (b) the Company would pay their share of the loss in the ratio of £15,000 (the sum insured) to £20,000 (the total value of the property) that is three- quarters of the loss, or 27,500 and the Assured would be responsible for the remaining fourth, £2,500. The position which would have arisen in the event of no condition of average having been in force would have been in the case of (a) that the Insured would still have suffered a loss of 15,000 as the maximum amount insured under the policy was only £15,000, and in the case of (b) the Insurance Policy would have covered the full loss of £10,000, the Insurer incurring no loss under these circumstances. It will be seen, therefore, that in the case of a partial loss not exceeding the amount insured, the individual -who had not insured the full value of his property would be better off under _policy where the condition of average did not apply. That, however, -which may -be advantageous to the individual insurer in certain circumstances may not necessarily and fa the long run prove to the advantage of the general body of Insurers. . . AVERAGE AND I3REMIUM. RATING.
It is quite clear that a considerable number of Insurers do not, for sundry reasons, insure for full value, and in such cases they do, where no condition of average applies, obtain protection at the expense of those Insurers who insure the full value of their property. The whole principle of insurance is that each individual should pay an equitable premium on the value of his property and that by means of the combined premiums of all concerned the losses of those unfortunate individuals' whose property should be attacked by fire should be recouped. There is not a -shadow of doubt that in order to hold an equitable balance -between the whole body of Insurers in any particular trade and occupation, the average clause is the only correct basis, but unfortunately, owing to various circumstances, it is not applied to-day to 'anything like the extent which has been the case in the past. - PRIVATE DWELLING HOUSE RISKS.
The usual Fire Policy on Private Dwelling Houses does not contain an average clause, and whilst such clause would be fairer to all concerned, it does not cause any undue hardship in practice, although perhaps if it were in use it would educate the public to the desirability from their own point of view of being fully insured, more especially as there are so many houses in existence to-day which, owing to increased cost of building, would cost from 75 per cent. to 100 per cent, more to-day to rebuild than the original cost, and notwithstanding this, in many cases the original sums insured have never been increased. On the other hand the rate of premium for insurance against Fire on buildings of Private Dwelling Houses is only one shilling and sixpence per £100, and the present system having been in force for so many years without any serious hardship it appears to be hardly necessary to make any ebange.
MERCANTILE AND MANUFACTURING RLSKS.
In connexion, however, with Mercantile and Manufacturing risks where it has been customary to apply the condition of average the tendency is growing to dispense with such condition, and it is in this direction that the position between the Insurer for full value and the Insurer who is underinsured is grossly unfair, and more especially will this be the case if the practice increases to any great extent, as the rates charged must of necessity increase if the total amounts insured are decreased to any serious extent.
AVERAGE. AN INSURANCE TENET.
Another unsatisfactory feature is that the tendency to delete this condition, which is, without doubt, one of the first and most essential of insurance tenets, is that foreign countries who look as a rule to the British Insurance Companies to lead the way in all that is best in Insurance principles are gradually deleting this condition. In France, for instance, the practice of issuing -*hat are called "Premier Los" Policies is extending apace, and these policies are to all intents and purposes the usual form of Fire Policy bereft of the average condition. Whilst for the time being those who take out such policies may appear to gain some pecuniary saving in the premiums charged, it Is to those who are well acquain- ted with the business quite apparent that it is only 8 matter of a comparatively short tune when it must become necessary to increase the rates, as nobody expects insurance to be carried on as a philanthropic institution, and rates based on a system of insurance of full values cannot be applied in cases where only partial value is the basis. To sum up the position it would appear abundantly clear that taking a long-sighted view of the situation it would be to the advantage of all concerned, both Insurers and Insurance Companies, that strong measures should be adopted 'with a view to preventing any further spread of what may be termed a Malignant disease, for it is likely to result in the weakening of the hitherto healthy constitution, which has been a feature of Insurance business, and of that transacted by the British Corn' . . pames in particular. - - -- Arrow.
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