The recent Monetary Policy Statement by the Reserve Bank Governor and the increase in prices in the market have led to speculative behaviour among most suppliers, resulting in an upsurge in property values. Motor vehicle owners and sellers have not been spared this trend.

It is imperative that your assets are insured for the correct replacement value. If they are not, this means they are underinsured, which will result in any claim being reduced in the same proportion as the underinsurance. This is known in insurance terms as applying the average condition.

The whole idea of insurance is to replace your assets in the event of a loss occurring. This means that whatever value you insure your asset for should be sufficient to enable you to replace it or at the very least purchase an asset of the same level as the one you had.  If you are underinsured you cannot achieve this, which defeats the objective of having insurance.

Under-insurance can be defined as insuring your asset for a value that is less than the cost of replacing it or of buying something close to it.

For example, if you have a 2006 Toyota Corolla that you valued at $5,000, whereas, if we were to look for that same vehicle in the market we would find it priced at $10,000, you would be underinsured by $5,000. In the event of a claim being made, the average condition would be applied. This means that the amount payable on the claim would be calculated in relation to the difference between the sum insured and the market value.

The following is an example of how a claim is settled in the event of underinsurance:

  • Client X insured her vehicle for a Sum Insured of $5,000, although the actual replacement value or market value is $10,000.
  • Client X is 50% underinsured, meaning that an average of 50% will be paid on all claims.
  • Unfortunately, Client X becomes involved in an accident and to repair the vehicle needs $1,000.
  • In such a scenario the Insurance Company will pay $500 of the claim after the 50% average has been applied.

To avoid inconvenience in the event of a claim, we urge you to insure your vehicle and other assets for the correct market value. The best way of determining whether or not your vehicle is insured for the correct value is to go around the market and confirm whether the value of your vehicle is still in line with the prices being charged to replace the vehicle.

For further clarification, please call 086 7700 4952 or email You can alternatively contact your broker’s office if you are insuring through a broker.