Payout reduced for “underinsurance”? The average clause has to be applied correctly.
The average clause lets an insurer scale your claim down in proportion to underinsurance — but only where you were genuinely underinsured, on the right valuation basis, with the arithmetic done correctly. Here's how to check.
Reviewed by the BimaHaq Insurance Grievance Desk — BimaHaq's in-house insurance-grievance team — specialists in IRDAI grievance redressal, the Insurance Ombudsman process, and policyholder rights in India. · Last reviewed 2026-07-11
An average-clause deduction is lawful only when three things are all true: the sum insured was genuinely below the value at risk, that value was measured on the correct basis the policy prescribes (reinstatement value versus market value less depreciation are very different numbers), and the proportion was computed correctly. The burden of establishing the value at risk sits with the insurer and its surveyor — a bare assertion of underinsurance, or a valuation on the wrong basis, does not support the cut.
Why insurers reject on this ground
In fire and property claims, the policy's 'condition of average' scales the payout down in the same proportion as the underinsurance — if you insured for half the property's value, you recover half of any loss. Surveyors apply it routinely, and sometimes on inflated valuations or the wrong valuation basis.
When you can challenge it
Start with the valuation basis: a reinstatement-value policy measures the value at risk as the cost of rebuilding new, while a market-value policy deducts depreciation — applying reinstatement math to a market-value policy (or vice versa) manufactures underinsurance that is not there. Then test the surveyor's valuation itself: what it included (land value must not be — buildings insurance covers the structure, not the plot), the rates used, and whether you can counter it with an independent valuation. Check the arithmetic of the proportion. And check the policy for any 'waiver of average' or tolerance clause — many policies waive the average condition where the underinsurance is within a stated margin, commonly 15 percent.
How to fight this rejection
Get the surveyor's assessment and the computation
You are entitled to the survey report. Get the value at risk the surveyor adopted, the basis (reinstatement or market value), what it included, and the exact proportion applied to your claim.
Test the valuation basis against the policy
Read the policy's valuation clause. If it is a reinstatement-value policy, the comparison must be with rebuilding cost; if market value, with depreciated value. Flag any land value or items outside the insured scope inflating the figure.
Counter with your own valuation if the gap matters
An independent valuer's report, recent construction bills, or a chartered engineer's estimate can contest the surveyor's value at risk — and check for a waiver-of-average margin in the policy that removes the deduction entirely.
Raise a written grievance with the insurer's GRO
Send a dated grievance to the insurer's Grievance Redressal Officer setting out why the rejection is wrong. The insurer must acknowledge it immediately and resolve it within 14 days.
Escalate to IRDAI on Bima Bharosa
If it isn't resolved in time or the reply is unsatisfactory, register the complaint on IRDAI's Bima Bharosa portal.
Take it to the Insurance Ombudsman
Free, binding on the insurer, and open to claims up to ₹50 lakh — file within one year of the insurer's rejection or final reply.
Common questions
What is the average clause in insurance?
It is a policy condition in fire and property insurance that scales the payout down in proportion to underinsurance: if the sum insured is only 60% of the property's value at risk, the insurer pays 60% of the assessed loss. It applies only where the sum insured was genuinely below the value at risk, measured on the basis the policy prescribes.
Can I dispute an underinsurance deduction?
Yes. The insurer must establish the value at risk — on the correct valuation basis, excluding things outside the insured scope such as land — and compute the proportion correctly. A surveyor's valuation can be contested with an independent valuation, and many policies waive the average condition where underinsurance is within a stated margin.
Does the average clause apply to health insurance?
No — the condition of average is a property-insurance concept. In health insurance the sum insured is simply the ceiling on what the policy pays; deductions there come from sub-limits, co-pay, or non-payable items, each of which is a different dispute.
See the full escalation ladder for a rejected claim, or use a free complaint-letter template.
This guide is general information about the insurance-grievance process in India, not legal advice, and figures (timelines, monetary limits, jurisdiction) can change — verify against the official sources linked above before you rely on them.