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Average Conditions in property insurance

The application of average is a method by which insurers seek to defeat under – insurance and its negative effects of the insurer, when an insurance is subject to average the amount payable by insurers is restricted to that proportion of the loss that the sum insured bears to the value of property at the time of loss or damage. The insured is thus made a co-insurer if the property at the time of loss is not covered for its full value. in order to ascertain the insurers liability in the event of a claim under a policy subject to average, the loss is assessed in the ordinary manner but the amount payable is determined after a comparison of the sum insured insured and the value of the property.

The application and operation of average is fair both to the insurers and to the members of the insuring public as insurance rates are calculated on the assumption that the property is fully covered.


NB average restricts the insurers liability for all loses where under- insurance exists by proving an equitable penalty- and is simpler than adjusting the rates.

There are four conditions of average namely:

  • The pro rata condition of average
  • The 85% condition of average
  • The special condition average
  • The two condition average


The Pro Rata Condition Average


This is the condition most frequently used and may be worded as follows:

“whenever a sum insured is declared to be subject to average, if such sum at the commencement of any damage is less than the value of the property covered within such sum insured, the amount payable by the insurer regarding such damage shall be proportionately reduced”


The operation of this condition can be demonstrated as follows:



Sum insured…………………………. KES 6,000,000

Loss………………………………………. KES 4,000,000


Value of property at time of loss of the fire………. KES 8,000,000


Insurers liability is


Sum insured   x Loss



= KES 6,000,000 ×   KES 4,000,000

    KES  8,00,000



=KES 3,000,000

The insurer shall pay KES 3,000,000 even if the loss incurred was KES 4,000,000. The insured will bear the balance of KES 1,000,000 of the loss because they had under insured. It is of course possible for the fill sum insured of KES six million to be paid (the insurer can never pay more the the sum insured in the event of total loss, but this will leave the insured as co- in

Surer of the remaining KES 2,000,000.

 The pro rata condition of average is generally applied in every in every contract of insurance on property against fire and special perils. With the following exceptions.


  • Building occupied solely for private residential purposes, including household goods and personal effects, or a building privately owned and insured in the name of the owner but occupied for trade purposes.
  • A building and its contents use wholly or mainly for public religious worship
  • Any item relating to agricultural produce. The sum insured by a such item will be subject to the special condition of average.
  • Insurances subject to two conditions average
  • Water damage insurances issued specifically on the first loss basis
  • Insurance on building whilst in course of erection.
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