Motor trade building insurance - beware of the dreaded ‘Average Clause’!

Building insurance is fairly straightforward, isn’t it? Well, not exactly. It’s true you need to insure your motor trade building for its rebuild cost, but do you really know what that involves? And do you know about the ‘average clause’? If not, then you need to read on because if you don’t get it right, you may well find you’re underinsured and could be seriously out of pocket in the event of a claim.

What is the ‘Average Clause’?
When you take out buildings insurance for your motor trade business – whether dealership, garage, workshop or body shop - it’s up to you to decide how much to insure it for, and this figure is your responsibility. The amount should cover the cost of rebuilding, including the fees involved. The insurance company then decides how much they will charge you for insuring the building, and this amount is known as the premium. But what happens if you’ve underestimated the rebuild cost and are underinsured?
For example, if the rebuild cost of your motor trade building is £1m, but you only insure it for £500,000, and the insurance company charges you a premium based on this amount, they will only be receiving half the premium they should. If you then put in a claim for £1m, you cannot expect them to pay out the full amount.
This is where the ‘average clause’ kicks in. This is the insurer’s way of making sure you only get what you have paid for. At most, you may get £500,000 and have to find the rest yourself. However, this doesn’t just apply to the total rebuild cost; it also applies to any other claim you may make.
For example, if someone crashes into your building and you make a claim for £10,000 to cover the damage, you may think you have adequate insurance in place as you’ve insured the building for £500,000. Right? No, wrong!
The ‘average clause’ kicks in again, and it’s all about percentages. As you had only insured the building for 50% of its rebuild cost, so, any other claim you make would payout at most 50%. This means you would receive up to £5,000 and have to pay the remaining cost yourself. Note the phrase ‘at most’. This is very important. Because of the way the average clause is calculated, your insurer would payout at most 50% of any claim made, but this figure could be less.
The only way to avoid the ‘average clause’ is to make sure you are adequately insured in the first place, and the only way to ensure this is to utilise the services of a property professional who understands rebuild costs.
As your broker, with many years’ experience arranging insurance for the motor trade, we fully recommend using the services of insurance valuation experts,, who will make sure you are adequately insured and not at risk of falling victim to the ‘average clause’.
To find out more, watch the video (click here)

To discuss your motor trade buildings insurance or renewal, give TMD a call on 01992 703300 or email
We’ll make sure you get it right when it comes to motor trade buildings insurance!