Watch out for Mr. Average!

Weighing up the right amount to cover your business to avoid any disputes with Average

If you have ever been forced to make an insurance claim which has been settled subject to the Application of Average, you will already know what a savage little blighter Mr. Average can be!

If you haven’t, you’ve probably no idea what I am writing about, so here is the Formula of Average to explain things:

How claim payouts work

Payout = Claim x (Sum Insured ÷ Current Value)

Get it? Well, I didn’t think you would, let me explain how Average can work against you in layman’s terms – which is how we like to do things here. I haven’t a clue how to run a Gentlemen’s Club or run an Online Retailer, so I don’t expect you to know about all things insurance. That is why you go to an insurance specialist which understands the Adult Industry – to look out for you and explain the small print.

The easiest way to understand the Application of Average to an insurance claim is to firstly understand that insurance companies require you to insure your businesses fixtures and fittings, machinery, stock – in fact everything in your premises, including the shop front and glass, for the full replacement value –AS NEW.


It is important to weigh up the right value of cover you require!

When calculating your sums insured for the purposes of obtaining an insurance quote, remember this AS NEW golden rule, because if you think your lighting system or DJ equipment are 20 years old and therefore only valued at £5,000.00, think again, as a brand new one will probably cost over £20,000.00, and, if you only insure it for the lower figure, you might save yourself some premium in the short term granted, but in the event of an insurance claim, Mr. Average will come calling, and trust me, you don’t want that…

That said, here is how Average could work against you, explained in its simplest form:

Imagine you insure your clubs contents for £50,000 and you have a claim, say, for a small fire. The man from the insurance company pays you a visit to calculate and inspect the damage, and after he has finished, he says “Sorry, but I calculate that the replacement value of these business contents AS NEW will be £100,000.00, and therefore, as you are insured for only £50,000.00, that is half of what you should be insured for, so we will pay only HALF OF YOUR CLAIM.”

That could spell devastation to your business, as I am sure you can imagine and it works proportionately all the way down the line. For the more technically minded of you, it is as follows:

How it works

(The Loss ÷ Correct Sums Insured)  X  Current Sums Insured = Settlement

As another example, if you had a £20,000 loss and the current sum insured was £35,000 and the actual sum insured should have been £55,000 as new, the insurers would only pay out £12,727, shown below:

How it works

(£20,000 (Loss) ÷ £55,000 (Correct Sums Insured)) X  £35,000 (Current Sums Insured)

=  £12,727 Settlement

Most business insurance, and some household insurance works like this, it’s not just for the adult industry. As Insurance Brokers, we can understand both sides of the coin as they say. Why for instance, would it be fair for an insurance company to have to pay out for a full claim when a client has only paid part of the actual insurance premium he/she should have paid, for full cover?

But regardless, remember these words of warning, and perhaps cut out this article and put it with your insurance papers to remind you to remember that golden rule – AS NEW, or better still, dig out your insurance policy booklet NOW and study your current sums insured – are they adequate to replace everything as new? You can always increase your sums insured with your insurance adviser midterm without any bother, so why not do it right away?

Golden Rule with insurance – Value everything AS NEW

It may well prevent a whole raft of bother if you were to have an insurance claim. And stop Mr. Average from paying you a very unwelcome visit!

For further information, please do visit our product pages here or feel free to call us for a chat during office hours on 01924 499182.