Most household and commercial policies carry an average clause. It is two lines long and it is the reason a claim comes back at less than the invoice.
How it works
The insurer compares the sum insured with what the property was actually worth at the time of the loss. If the sum insured is short, the settlement is reduced by the same fraction.
A shop declares stock at £120,000. The stock at the time of the fire was worth £160,000. The loss is £40,000. The settlement is not £40,000; it is
40,000 × (120,000 / 160,000) = £30,000The shop is not underinsured by £40,000. It is underinsured by 25%, and every claim it makes for the rest of the term is 25% short — including the small ones.
Why the sum insured drifts
Three reasons, in the order we see them.
Rebuild cost is not market value. A terrace worth £240,000 to a buyer can cost £310,000 to rebuild, because the buyer is not paying for scaffolding, a party wall award and a skip.
Stock moves seasonally. A shop that carries £90,000 in February carries £150,000 in the first week of December, which is also the week it is most likely to be broken into.
Nobody re-reads the schedule. The figure was right when it was set, and index linking is a blunt instrument — it tracks a national index, not the extension you built in 2024.
What to do about it
Ask for the sum insured to be reviewed at renewal rather than rolled over. For buildings over about £500,000, a reinstatement cost assessment is worth its fee. For stock, tell us the seasonal peak and we will put an uplift in the wording rather than leaving you to carry it.
If you would like the figures on your own schedule checked, ring the office and have the policy number from the counterfoil to hand.