They said you were underinsured.
The clause that cuts your payout in half.
Average is the rule that reduces your settlement by the same proportion you were underinsured. Before you accept it: is that clause actually in your policy — and who chose the number in the first place?
Who's behind thisSteve Smart Helped people recover £25M+ from rejected claimsRe: Your claim
Dear ,
We have now completed our review of your claim.
Your sum insured of £45,000 represents approximately 60% of the true rebuild cost. In accordance with the condition of average, your settlement has been reduced proportionately.As you have underinsured the property, the principle of average has been applied to your claim.Had the correct sum insured been declared, the premium would have been higher. Your claim has been settled on a proportionate basis.
We therefore regret that we are unable to meet your claim on this occasion.
Yours sincerely,
Claims Department
What they mean
If the sum insured on your policy is lower than what it should have been, an "average" clause lets the insurer cut your payout by the same proportion. Insured for 60% of the rebuild cost? You get 60% of your claim — even when the claim itself is nowhere near the sum insured.
It catches people out badly, because a £20,000 water-damage claim on a house insured for £150,000 instead of £250,000 does not feel like it should be reduced at all. Under an average clause, it can be.
Where it overreaches
Average is a condition, not a law of nature. It applies because a clause in the contract says so — which means the first question is always whether that clause is actually there, and whether it is clear enough to do the work being asked of it. Not every consumer policy contains one.
Then there is the question of who produced the number. If the sum insured came out of the insurer’s own online calculator, or from a figure the broker suggested, the story that you understated the value looks rather different.
And under-insurance usually traces back to a question you answered. That puts it under CIDRA, where the remedy for getting it wrong carelessly is proportionate — not a licence to refuse.
This is precisely the territory Which? raised in its 2025 super-complaint to the FCA: home insurance terms that are unclear to the people buying them, applied strictly to the people claiming on them.
The counter-arguments
These are the points that put the burden back where it belongs. Not every one will apply to your case — the letter we write picks the ones that do.
Average applies because the policy says it does. So the starting point is simple: ask the insurer to point to the exact wording in your policy that they are relying on, and read it.
Some consumer policies do not contain an average clause at all. Others contain one that is narrower than the way it is being applied. Neither of those is unusual, and neither will be volunteered.
Sums insured very often come from the insurer’s own rebuild calculator, a comparison site, or a broker’s suggestion. If you entered your details honestly and their tool produced the figure, it is a stretch for them to treat that figure as your misrepresentation.
Dig out how the policy was set up. What you are looking for is who generated the number — and whether you were ever really asked for it at all.
Where under-insurance comes from an answer you gave, consumer law treats it as a misrepresentation question. The remedy then depends entirely on how you got it wrong. Deliberate or reckless is one thing. Careless — which is what an honest underestimate is — gets a proportionate remedy, not a refusal.
It matters which one they are alleging, because a careless misrepresentation is presumed unless the insurer can show otherwise. If the letter reaches for the strongest remedy without engaging with that, it has skipped the step that decides the case.
CIDRA 2012, s.5 & Sch 1A genuinely common and expensive confusion — sometimes on both sides. Buildings cover insures the cost of rebuilding your home, which is often very different from what the house would sell for.
It is worth checking that the "true" figure the insurer is now comparing you against is itself the right kind of number, and that their assessment of it stands up.
A misrepresentation has to be a response to a clear question. If what you were asked was vague, ambiguous, or buried, the insurer’s position weakens considerably.
Ask to see the actual question as it was put to you at the point of sale — not a summary of it written afterwards.
CIDRA 2012, s.2Sources: Consumer Insurance (Disclosure and Representations) Act 2012
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Questions
It is a policy condition that lets an insurer reduce your payout by the same proportion that you were underinsured. If your sum insured was 60% of what it should have been, you receive 60% of your claim.
It applies because the contract says so — which means it only applies if that clause is actually in your policy.
Only if your policy contains an average clause, or if the under-insurance amounts to a misrepresentation under consumer insurance law.
Even then the remedy depends on how it happened. An honest underestimate is treated as careless, and the remedy for that is proportionate rather than a refusal.
That significantly weakens their position. If you answered honestly and their tool produced the figure, it is difficult for them to characterise the result as your misrepresentation.
Find whatever record you have of how the policy was set up — it is often the point the whole case turns on.
That is how average works, and it is what makes it feel so unfair. The reduction is based on the proportion you were underinsured by, not on the size of your claim — so a small claim on a badly underinsured policy can still be cut.
Which? raised exactly this kind of term in its 2025 super-complaint to the FCA about home and travel insurance.
No. smarterclaims publishes legal information and writes letters you can send yourself — like a digital version of a published legal guide. We are not a law firm and we do not give advice.
If your case needs professional representation, we will tell you, and we can introduce you to the right people if you ask us to.
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It should not, and firms are required to handle complaints fairly. Insurers deal with complaints as routine business — a well-argued letter tends to be taken more seriously than an angry phone call, not less.
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Meet Steve Who's behind this
Forty years inside the insurance industry, in both senior legal and commercial roles. Former UK General Counsel at AIG. Current Chairman of Lancashire Insurance UK. Regular voice on LBC radio. Steve has watched the same disputes come up again and again — and built the library of arguments that smarterclaims runs on, based on his decades of experience.
“I've spent forty years on the inside of insurance. The same excuses come up again and again, and most consumers don't know how to overcome them. This is the tool I wish my clients had before they called me.”Steve SmartMore about Steve
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