Average & VAR Calculations

Whenever a Sum insured is declared to be subject to Average, if such sum shall at the commencement of any Damage be less than the value of the property

covered within such Sum Insured, the amount payable by the insurers in respect of such Damage shall be

proportionately reduced.

VAR & Average

Basic Example

£250,000(Sum Insured) x £100,000 (loss)

£400,000(Value at time of fire)

Amount Payable =£62,500

VAR & Average

Types of Average:

The Condition of Average

Day One Average

Reinstatement Memorandum Condition of Average

Special Condition of Average

Two Conditions of Average

VAR & Average

85% Average

Sum Insured X Loss

Cost of Reinstatement at time of fire

Day One Average

Declared Value at inception X LossCost of Reinstatement at inception

VAR & Average

Calculating a VAR

The real purpose of calculating the VAR is to establish if average applies and if so, to what extent.

The insured may be keen to suppress the VAR although our aim is to arrive at a fair valuation.

Important to confirm that VAR agreed is purposes of the claim settlement

VAR & Average

Remember to use the same measure of “value” in the Operative clause as the “value”.

In the claims condition e.g:.

Reinstatement

Indemnity(wear & tear)

Diminution in market value.

VAR & Average

Method of Calculating a VAR.

1. Relate to cost when new

2. Produce a full Bill of Quantities priced by a QS

3. Relate to another building

4. Produce elemental Bill

5. Use tables showing average £/m2

6. Use sum insured to act as a check

VAR & Average

VAR & Average

VAR & Average

ABC

Named remove to protect the innocent

What to include:.

–Demolition–Local Authority requirements–Fees–Special features-roads,drainage

–VAT

( Check what is covered in the Building definition within the policy)

VAR & Average

1 Relate to cost when new

This is the most accurate form of valuation, as the cost comes from a real life costing and can be evidenced.

Use indices to update the cost to the appropriate time (time of fire, inception of policy, time when repaired)

VAR & Average

VAR & Average

VAR & Average

2-Produce a full Bill of Quantities priced by a QS

This is not a viable option as it would cost too much. Should, however, a significant proportion

of the building be damage and a bill is to be produced for these elements then reference could be made when producing the VAR.

VAR & Average

3- Relate to another building

Adjust for: Price (location & time)

Quantity

Quality

VAR & Average

VAR & Average

VAR & Average

4-Produce elemental Bill

This process is similar to producing a bill, although is much quicker as the element is measured.

Historic cost information is required to price, although this method can be used in conjunction

with the use of tables, or the method detailed above when comparing to another building.

VAR & Average

VAR & Average

5- Use tables showing average £/m2

This is the most common method used due to the availability of tables.

Tables give building costs only: Demolition, Fees and external works are to be added.

VAR & Average

VAR & Average

6-Use sum insured to act as a check.

Pro rata area affected

Review ratio of sum insured to % damaged

Repairs and small areas are less cost efficient.

Temporary roof, hand demolition,

VAT- on domestic dwellings

VAR & Average

Tips for Negotiating.

•Produce detailed records and use a tape to measure the building.

•Don’t use too high a rate per meter

•Professional fees 10% to 15%

•Demolition between 5% and 10%

•Suggest the insured pays for a professional VAR.

•Remember to adjust cost to the right period of time, i.e. date of loss or day one

VAR & Average

The End

VAR & Average