under-insurance

---
name: under-insurance
description: Finds the clause that quietly cuts your payout and shows exactly how much it would cut, by pulling every sum insured and declared value off your schedule, finding the average condition in your own wording and quoting it, listing what each sum insured is supposed to cover and what nobody has counted, and producing a worked reduction at your own figures plus a dated instruction list for the valuer and the broker. Use when your sums insured were set years ago, when you have refitted, extended or changed what you sell, or when you have never read the word average in your policy and do not know it is there.
---

# The sum insured measured against a real figure, before the average clause measures it for you

You give this your schedule with every sum insured and declared value, your policy wording, your asset and stock records, your last valuation if you have one, and the dates each figure was set. You get back a sums insured register showing what each figure was based on and when, the average condition quoted verbatim from your own wording with the threshold it uses, a list of everything that ought to be inside each sum insured and is not, a worked example at your own numbers showing what a claim would become, and a dated instruction list for the person who actually measures buildings. It will not estimate your rebuilding cost, your stock value or your gross profit figure. Those are measured by a surveyor, an accountant and your own records, and a guessed sum insured is the exact problem this skill exists to find.

## What it does

1. **Pull every sum insured and declared value off the schedule and write down when each was last set and by whom.** Buildings, tenants improvements, landlord's fixtures, contents, stock, computers, money, glass, deterioration of stock in the freezer, and the business interruption figure with its indemnity period. For each, record the number, the date it was set, who set it, and what it was based on: a valuation, an accountant's figure, a builder's estimate, last year's number plus a bit, or nothing anyone can remember. The last of those is the most common answer in an independent venue and it needs to be written down as that, not tidied into something firmer.

2. **Find the average condition in your own wording, quote it, and note which form it takes.** The Chartered Institute of Loss Adjusters records that "Commercial policies will typically contain the average condition which will be applicable in those instances where underinsurance is determined". The plain form reads: "If at the time damage occurs the sum insured is less than the value of the property the Company's liability for any loss shall be limited to that proportion of the amount otherwise payable which the sum insured bears to the whole". Find the equivalent clause in your wording, copy it word for word with its clause number, and record whether it is a plain average condition, a reinstatement average condition or a day one average. They behave differently and an owner who knows the word average but not the form does not know their position.

3. **Record the threshold, because most modern wordings give a margin and it is not generous.** CILA describes the common form: "It is usual to find that the policy condition provides some margin for underinsurance often in the form of the 85% average clause", and, "In such instances provided that the sum insured reflects no less than 85% of the value at risk average will not apply. Thus the policyholder is given 15% inflationary margin." A typical reinstatement average clause reads: "If at the time of reinstatement the sum representing 85% of the cost which would have been incurred in reinstating the whole of the property covered by any item the liability of the Insurers will not exceed that proportion of the amount of the damage which the sum insured shall bear to the sum representing the total cost of reinstating the whole of such property at that time". Record the percentage your wording actually uses. It may be 85, it may be something else, and it may not be there at all.

4. **Understand what the effect is, because it is not refusal and that is why it goes unnoticed.** Average does not decline the claim. CILA states the mechanism: "The policy condition requires that where underinsurance is determined the claim will be reduced on a pro rata basis i.e. in the ratio that the sum insured bears to the value at risk." A venue insured for sixty per cent of the real figure gets sixty per cent of a small claim as readily as sixty per cent of a large one. The owner pays a full excess, receives a part payment, finds the difference themselves, and often never learns the word that caused it. Write the mechanism into the output in those words, because it is the part that changes behaviour.

5. **List everything that should be inside each sum insured and is not, without putting a number on it.** For buildings the value at risk is, in CILA's definition, "the rebuilding cost of all of the property insured including demolition and professional fees, either at the time of the loss or, in some cases, at the time of reinstatement". The things routinely left out of a venue's buildings figure are demolition and site clearance, professional fees, the cost of complying with current building regulations on rebuild, outbuildings, the cellar, boundary walls, car park surfacing, signage and the extraction system. For contents and stock the omissions are the walk in, the cellar cooling, the coffee machine on a finance agreement, stock at the highest point of the year rather than the average, and goods held for someone else. List each omission as a named item with the word unmeasured beside it. Do not price any of them.

6. **Watch the second penalty, which is the Insurance Act and not the average clause at all.** A sum insured is not only a limit, it is a statement made to the insurer. Section 3(1) of the Insurance Act 2015 requires the insured to "make to the insurer a fair presentation of the risk", and section 3(3)(c) requires that "every material representation as to a matter of fact is substantially correct". Schedule 1 then supplies the proportionate remedy where the breach was neither deliberate nor reckless and the insurer would have charged more: the claim is reduced by the ratio of the premium actually charged to the premium that would have been charged. That reduction can sit alongside the average reduction rather than instead of it. CILA puts the harder version plainly: "In severe cases, the ultimate sanction of the insurer may be to decline if the underinsurance is found to be a deliberate misrepresentation." Record both exposures separately and do not merge them.

7. **Hand the mechanical work to Codex and keep the judgement here.** Run, from the folder holding the schedule and the asset records:

   ```
   codex exec --sandbox danger-full-access --skip-git-repo-check -C "<working folder>" - < CODEX.md
   ```

   Claude hands over the sums insured register with the date and basis of every figure, the average condition quoted verbatim with its clause number and its threshold percentage, the omissions list with every item marked unmeasured, any professional valuation figure with its date and the valuer's name, and the owner's own instruction on which figures are to be revalued. Codex returns the sums insured register, the average condition record, the omissions register, a worked reduction table built only from figures the owner supplied, an index linking record, and a gaps file. Codex estimates nothing, and any sum insured with no supplied basis is a gap, not a number.

8. **Produce the worked example at the owner's own numbers, and only where a real second figure exists.** Where a professional valuation, a builder's quotation or an accountant's figure exists, show the arithmetic: the sum insured, the value at risk, the ratio, the threshold in the wording, whether average applies, and what a claim of a stated size would become. Where no second figure exists, print the formula with the sum insured filled in and the value at risk left blank, and say in words that the blank is the reason the exercise cannot be completed. A worked example built on an invented value at risk is worse than no example, because an owner will remember the reassuring number and forget where it came from.

9. **Write the instruction list, with a date against each line and a named person to do it.** Which figures go to a chartered surveyor for a reinstatement cost assessment, which go to the accountant, which the owner can evidence from their own records, and which the broker must confirm the wording for. Put the renewal date at the top, because a revised sum insured is worth having before the renewal rather than after it, and record the date each existing figure was set so that the age of each number is visible on the page. An unchanged sum insured is not a stable one. Building costs move, the figure does not, and the gap opens quietly every year nobody looks.

## Then it checks

1. Every sum insured and declared value on the schedule appears in the register with the date it was set, the person who set it and the basis it rests on, and any figure with no remembered basis is recorded as having none.
2. The average condition is quoted verbatim from the owner's own wording with its clause number, its form named as plain, reinstatement or day one, and its threshold percentage recorded, or the file states in terms that no average condition was found.
3. Every omission on the list is a named item marked unmeasured, and no omission carries a figure that did not come from a document the owner supplied.
4. The worked reduction table contains only figures traceable to a supplied document, and every value at risk cell with no supplied source is blank rather than filled.
5. The Insurance Act exposure is recorded separately from the average exposure, and the file does not describe them as the same thing or net one against the other.
6. Every line on the instruction list names a person and a date, and the renewal date appears at the top of the page.

Any check fails: name it, redo that step once. Failed twice: say what is wrong and stop.

## Rules
- Public information only.
- Never invent a fact, a number or a quote.
- Anything sent in someone's name says whose name it is.
- Never state a rebuilding cost per square metre, a typical sum insured, a typical level of under-insurance or the proportion of venues said to be under-insured. No published figure exists for a single independent UK hospitality building, the percentages that circulate come from firms selling valuations, and an owner who adopts one has replaced a guessed sum insured with a differently guessed sum insured while believing the problem is solved.
- Never estimate a value at risk, a rebuilding cost, a stock value or a gross profit figure, and never adjust one by inflation to make an example work. The measurement is the job of a chartered surveyor, an accountant or the owner's own records, and the whole point of the skill is to send it there.
- Never tell the owner what sum insured to declare. Record what is declared, record what a professional measured where one has, and show the arithmetic between them.
- Never recommend an insurer, a broker, a valuer, a valuation firm or a policy wording.
- Never treat a sum insured as adequate because a claim has been paid in the past. Average bites on the value at the time of the loss, and a small claim settled in full two years ago proves nothing about the figure today.
- Never merge the average reduction and the Insurance Act proportionate remedy into one number. They arise under different instruments, they are decided by different people, and they can apply together.
- This output is a working document prepared for the owner's own FCA authorised insurance broker to check, and for a chartered surveyor and the owner's accountant to supply the figures it deliberately leaves blank. It applies published wordings to figures the owner supplied. It is not advice on which policy to buy, it is not a valuation, and it is not a statement that any sum insured is adequate.

## Built from
- Chartered Institute of Loss Adjusters, John R Carey, "An Insight into Insurance Rebuilding Costs", https://cila.co.uk/wp-content/uploads/2023/12/An-Insight-into-Insurance-Rebuilding-Costs.pdf, dated May 2016 on its title page, copyright CILA 2023, read 23 September 2026: the definition of value at risk, the plain average clause, the reinstatement average clause, the 85 per cent threshold and the pro rata mechanism, in steps 2, 3, 4 and 5.
- Insurance Act 2015, section 3, https://www.legislation.gov.uk/ukpga/2015/4/section/3, read 23 September 2026: the duty of fair presentation and the requirement that every material representation of fact be substantially correct, in step 6.
- Insurance Act 2015, section 8, https://www.legislation.gov.uk/ukpga/2015/4/section/8, read 23 September 2026: the qualifying breach test and the deliberate or reckless distinction, in step 6.
- Insurance Act 2015, Schedule 1, https://www.legislation.gov.uk/ukpga/2015/4/schedule/1, read 23 September 2026: the proportionate reduction remedy, calculated from the premium actually charged against the higher premium, in step 6.
- Insurance Act 2015, section 11, https://www.legislation.gov.uk/ukpga/2015/4/section/11, read 23 September 2026: terms not relevant to the actual loss, cited to make clear that this protection does not reach an average condition, which is a measure of the sum insured rather than a risk reduction term.
- Financial Conduct Authority Handbook, ICOBS 6.1, https://www.handbook.fca.org.uk/handbook/ICOBS/6/1.html, read 23 September 2026: the duty in ICOBS 6.1.5R that a customer is given appropriate information about a policy in good time and in a comprehensible form, which is the rule an owner can point at when asking the broker to explain the average condition in writing, in steps 2 and 9.
- Financial Conduct Authority Handbook, ICOBS 5.2, https://www.handbook.fca.org.uk/handbook/ICOBS/5/2.html, rule effective 1 October 2018, read 23 September 2026: the demands and needs duty that makes the broker the right destination for the instruction list in step 9.

# under-insurance

## You are given
The sums insured position of one UK independent hospitality business. Every sum insured and declared value transcribed from the schedule, each with the item name exactly as printed, the figure, the date the figure was set, the name of the person who set it, and the owner's statement of what it was based on. The policy wording's average condition, quoted verbatim with its clause number, together with the owner's identification of its form and the threshold percentage it states, where there is one. The business interruption sum insured and the indemnity period exactly as printed. Any professional valuation, builder's quotation or accountant's figure the owner holds, each with the figure, the date, the name of the firm and what the figure covers. The owner's omissions list, naming every item that ought to sit inside a sum insured and does not, each written as a plain item and marked unmeasured. The index linking position for each item, stated by the owner as applied, not applied or not stated. The owner's instruction on which figures are to be professionally measured, by whom and by when. All judgement calls, including which items are omitted, which figures are unreliable and what is to be revalued, have already been made by the owner and are supplied to you.

## Produce
Write into a `./under-insurance-output/` folder:

1. `sums-insured.csv` with these columns in this order: `item_ref`, `item_name_verbatim`, `sum_insured_gbp`, `date_figure_set`, `set_by`, `basis_of_figure`, `age_of_figure_days`, `index_linking`, `source_document`. `item_ref` is S001 upward in schedule order. `basis_of_figure` is exactly one of `professional valuation`, `builder or contractor quotation`, `accountant figure`, `own records`, `previous year figure carried forward`, `nobody recalls`, `not stated`. `index_linking` is exactly one of `applied`, `not applied`, `not stated`. `age_of_figure_days` is calculated only from the supplied `date_figure_set` and the supplied file build date, and is left empty where the date is missing.
2. `average-condition.md` recording, on separate lines and nothing else: whether an average condition was found, stated as `found` or `not found in the supplied wording`; the clause number; the condition quoted verbatim; its form stated as `plain average`, `reinstatement average`, `day one average` or `not stated`; the threshold percentage stated as a number or `none stated`; and the items in `sums-insured.csv` the condition applies to, by `item_ref`. Every line names the document and clause it came from.
3. `value-at-risk.csv` with columns: `item_ref`, `item_name_verbatim`, `sum_insured_gbp`, `value_at_risk_gbp`, `value_source`, `value_date`, `value_supplied_by`, `ratio_percent`, `threshold_percent`, `average_applies`. `value_source` is exactly one of `professional valuation`, `builder or contractor quotation`, `accountant figure`, `own records`, `no second figure supplied`. `ratio_percent` is calculated only where both `sum_insured_gbp` and `value_at_risk_gbp` are supplied, and is left empty otherwise. `average_applies` is exactly one of `yes`, `no`, `cannot be determined without a value at risk`.
4. `worked-reduction.csv` with columns: `item_ref`, `item_name_verbatim`, `assumed_claim_gbp`, `ratio_percent`, `reduction_gbp`, `amount_payable_before_excess_gbp`, `excess_gbp`, `amount_payable_after_excess_gbp`, `figures_complete`. `assumed_claim_gbp` is only ever a figure the owner supplied as the claim size to illustrate, never one you choose. `figures_complete` is `yes` or `no`, and is `no` wherever any input was missing, in which case every calculated cell in that row is left empty.
5. `omissions.csv` with columns: `omission_ref`, `item_ref`, `omitted_item_verbatim`, `omission_category`, `measured`, `who_will_measure`, `date_due`. `omission_category` is exactly one of `demolition and site clearance`, `professional fees`, `compliance with current building regulations`, `outbuildings and external works`, `plant and equipment`, `stock at peak`, `goods held for others`, `tenants improvements`, `other`. `measured` is always `no` unless a supplied professional figure covers that exact item.
6. `presentation-exposure.md` recording, on separate lines and nothing else: each sum insured whose `basis_of_figure` is `nobody recalls`, `previous year figure carried forward` or `not stated`; the Insurance Act 2015 section 3(3)(c) requirement quoted verbatim; the Schedule 1 proportionate reduction described in one supplied sentence; and a line stating that this exposure is recorded separately from the average condition exposure and that the two are never netted. Every line names the item reference it refers to.
7. `instruction-list.md` a numbered list, one line per instruction supplied by the owner, each printing the item reference, the action, the named person or firm, and the date due, with the policy renewal date printed once at the top of the page.
8. `gaps.md` a numbered list of: every sum insured with `basis_of_figure` of `nobody recalls` or `not stated`; every sum insured with no `date_figure_set`; every item with `value_source` of `no second figure supplied`; every row in `worked-reduction.csv` where `figures_complete` is `no`; every omission with no named person to measure it; every item where `index_linking` is `not stated`; and any figure supplied without a source document.

## Rules
- Codex transcribes, compares, calculates from supplied figures and sorts. It never estimates a value at risk, never sets a sum insured, never decides whether a figure is adequate, and never chooses the size of an illustrative claim. Those were supplied.
- Never fill a `value_at_risk_gbp` cell from a rate per square metre, an inflation adjustment, a previous year's figure, a market value, a purchase price or any published index. Only a supplied professional figure, quotation, accountant figure or own record goes in that cell. Everything else leaves it empty.
- Never calculate a ratio, a reduction or an amount payable where any input is missing. Leave every calculated cell in that row empty and set `figures_complete` to `no`.
- Never record `average_applies` as `no` because no average condition was found in the part of the wording supplied. Where the wording supplied is incomplete, record `cannot be determined without a value at risk` and put the incompleteness in `gaps.md`.
- Never write a rebuilding cost per square metre, a typical sum insured, a typical level of under-insurance, a proportion of businesses said to be under-insured, or any other benchmark figure into any file. No such published figure exists for a single independent UK hospitality building and none is to be recorded.
- Never merge the average condition reduction and the Insurance Act proportionate reduction into a single figure, and never net one against the other. They are recorded in separate files.
- Never adjust a supplied figure for inflation, indexation or the passage of time. Record the figure and its date and let the age column show the problem.
- Use British English, GBP written as `GBP` or the pound sign, and DD Month YYYY dates. No em dashes in any file you write, and any supplied text containing one is recorded verbatim and flagged in `gaps.md`.
- Every file ends with this line: this is a working document prepared for the owner's own FCA authorised insurance broker to check, and for a chartered surveyor and the owner's accountant to supply the figures it leaves blank. It records supplied wordings and supplied figures and is not a valuation, not advice on which policy to buy, and not a statement that any sum insured is adequate.

## Return
The absolute path of every file written, the row count of each CSV, the total of all sums insured as supplied, the count of sums insured whose basis is `nobody recalls` or `previous year figure carried forward` and their item names, the oldest `date_figure_set` and the item it belongs to, the average condition conclusion from `average-condition.md` stated in full with its clause number and threshold, the count of items where `average_applies` is `cannot be determined without a value at risk`, the count of rows in `worked-reduction.csv` where `figures_complete` is `no`, the count of omissions by category, the number of instructions with no named person, and the `gaps.md` item count.