I was enjoying my customary read of Insurance Times today and my interest was particularly drawn to your article on contents insurance (Features, 27 April).
It is a really splendid article and is unusual for providing new (to me, at any rate) information on a much ignored subject. In the panel headed "An underinsurance warning" the second paragraph - the quote from Ian Cullen - makes very surprising reading.
One of the first conundrums with which I had to grapple in Elements of Insurance - the first part of the CII exams - was average. Oh dear, what happened to Mr Cullen's course books?
His example is a classic howler. He must surely know that the 50% limit applies to the loss, not the sum insured. That means that the claim payment would be for £50,000, not £25,000.
This is totally logical because the client insured only 50% of his contents and can therefore only claim for 50% of the loss. He is in effect his own insurer for the balance, or a 'co-insurer' for 50% of the schedule.
I am sorely tempted to write an acerbic letter for publication because somebody as exalted as the sales and marketing director for no less a company than Aon should know better.
However, I am sure it was just a mistake in the heat of a telephone interview and he now feels a complete idiot having seen it in print, and is no doubt suffering a right royal ribbing from his friends and colleagues.
On a separate but related subject, and one worth checking as well, I should have thought Aon would offer a warranty-free policy for its HNW clients. Everybody else does. If they do, there would be no average clause.
In fact I am not aware of any household policies which contain an average clause. It was always the case that average appeared only in commercial policies.
Household policies relied on a "full value warranty", which meant the insurers retained a number of options by which they could be flexible according to the circumstances.
Their preferred method was usually to settle on an indemnity basis, that is, deducting wear and tear depreciation from either the new replacement or the original purchase price (that's two options), or they could apply average, particularly if the loss was substantial, or of course their ultimate sanction was that the client was in breach of the warranty and guilty of misrepresentation on the proposal form (remember them?) and repudiate the claim altogether.
In a truly extreme case they could make allegations of fraud - seeking to obtain (insurance) money by deception (a full value claim knowing the sum insured was insufficient, and hoping the insurers would not investigate beyond processing the claim papers).
Richard Weston
Richard Weston Ltd
