IAJ urges policyholders to review sums insured as average-clause disputes mount after Melissa

The Insurance Association of Jamaica (IAJ) urges property owners to check whether their coverage reflects the true replacement value of their homes and businesses, as the average clause – a long-standing but little-understood insurance provision – continues to reduce Hurricane Melissa payouts for underinsured policyholders.

“The IAJ recognises that many policyholders do not fully appreciate the effect of underinsurance until they suffer a major loss,” the association said in a written response to the Financial Gleaner. “This is where the industry, brokers, valuers and policyholders all have lessons to learn.”

The clause reduces a payout in the same proportion that a property is underinsured. If a home is insured for 70 per cent of its true replacement value, the average clause can mean an insurer pays only 70 per cent of an otherwise valid claim – even on a partial loss – with any policy deductible still applied on top.

The IAJ said it publishes reminders about the clause in print at least quarterly, but acknowledged that many policyholders are unaware of the mechanism until they have already suffered a loss. The association said it supports the Financial Services Commission’s (FSC) enhanced supervisory engagement on the matter, and that the industry’s objective is “aligned with the regulator’s: valid claims should be assessed and settled as quickly, fairly and transparently as possible”.

The comments respond directly to the FSC’s disclosure that it has commenced a focused review of how insurers are applying the clause in Melissa-related underinsurance cases – a review this newspaper first reported on July 9.

“The average clause is not new, nor is it intended to be punitive,” the association said. “It is a standard insurance principle that applies where the sum insured is materially below the actual replacement or reinstatement value of the property. In those circumstances, the policyholder is treated as having retained part of the risk, and the claim payment may be reduced proportionately.”

The average-clause scrutiny sits inside a wider claims backlog. The IAJ said Hurricane Melissa produced “an extraordinary concentration of property claims” that strained insurers, loss adjusters and brokers alike. The association conceded that some claims – particularly larger and more complex property and business-interruption cases – have taken longer than policyholders expected.

On industry-wide settlement figures, the IAJ said claims data remains with individual insurers, who are reporting it to the FSC through the supervisory process – meaning the association itself does not yet hold consolidated numbers on Melissa claims settlement rates. The association gave no date for when it might disclose an industry-wide figure, saying only that it “would not wish to release partial or unverified figures that could mislead the public”.

carolyn.guniss@rjrgleaner.com