Why the Condition of Average makes this worse than it looks. When a policyholder cuts their sums insured to save on premium, or simply never updates a rebuild valuation as costs rise, most commercial property and business interruption policies contain a clause called the Condition of Average. If the sum insured turns out to be lower than the true rebuild cost at the time of a claim, the payout is reduced by the same proportion. A property insured for 70% of its actual value, for example, typically gets a claim paid at 70% of the loss, not the full amount. For a business already cutting cover to manage costs, this is the mechanism that turns a manageable renewal decision into an unrecoverable loss later on.
