# Capital Compensation in insurance: when it can make a real difference to your claim

Introduction

In many insurance claims, especially when the compensation offered is lower than expected, there is a technical concept that often goes unnoticed but can be decisive: capital compensation.

It is not automatic.
It does not always apply.
And it is rarely obvious at first glance.

In practice, it is usually included in the general policy conditions, often buried in less visible sections. In complex claims, with extensive documentation and multiple damage items, what is not obvious is difficult to identify.

When correctly detected and properly justified, capital compensation can:

• prevent the application of the proportional rule
• significantly reduce underinsurance
• or substantially increase the final compensation

What is capital compensation?

Capital compensation is a mechanism included in some insurance policies that allows redistributing insured capital between different sections (for example, building and contents) when there is a real surplus in one section and a deficit in another.

Key points to consider:

• It can only be applied if expressly allowed by the policy, usually in the general conditions.
• It is not an automatic right.
• Proper application requires a technical and comprehensive review of both the policy and the claim.

Why it is often overlooked

In our experience, capital compensation is rarely ignored intentionally. More often, it is missed due to common practical reasons:

• It is located in less visible sections of the policy
• It appears in general conditions rather than summaries
• Claims involve multiple reports, valuations and documents
• Claims handlers manage a high volume of cases
• The priority is often to close the claim, not to review it in depth

In this context, if everything is difficult to see, it is difficult to find.

When capital compensation changes the outcome (real cases)

Case 1 — Metal carpentry company (anonymous)

A company manufacturing metal windows and security grilles suffered a loss affecting both the premises and its machinery and materials.

Initial situation:

• High insured value for the building
• Very low insured value for contents and stock
• The owner did not expect aluminium materials to be considered damaged
• After the incident, materials were scratched, warped and unusable
• Machinery was insured at approximately 80 %

The main issue was that stock and part of the machinery were underinsured, leading to a clearly insufficient compensation.

After reviewing the policy conditions, technically justifying the material damage and identifying surplus building capital, capital compensation was applied, reallocating capital to machinery and damaged materials.

Result: The correct application of capital compensation increased the compensation by more than €38,000.

This improvement did not result from a generic claim, but from understanding how capital allocation, real damage and policy clauses interact.

Case 2 — Hair salon and beauty centre in Paiporta (DANA flood)

A commercial premises affected by severe flooding (DANA), covered by two policies:

• the building owners’ association policy
• a private business policy

Initial situation:

• Building underinsurance of approximately 30 %
• Contents and equipment significantly undervalued
• Initial compensation far below the actual damage

The review followed this sequence:

1. Joint analysis of both policies
2. Combination of building insured values
3. Elimination of the initial underinsurance
4. Application of underinsurance tolerance
5. Identification of a policy allowing capital compensation
6. Allocation of surplus building capital to contents and equipment

Result: By combining policies correctly and applying capital compensation, the total compensation increased by more than €50,000.

These situations are common in flood-related claims, where multiple policies and initial assessments often underestimate the real loss.

Capital compensation, underinsurance and the proportional rule

In practice, capital compensation is closely linked to underinsurance and the proportional rule.

When correctly reviewed:

• in some cases, the proportional rule can be avoided entirely
• in others, its impact can be significantly reduced

This is particularly relevant in outdated policies, where insured values may be up to 40 % below the real reconstruction value.

Knowing it exists is not enough — knowing how to find it matters

Capital compensation rarely appears in policy summaries or initial loss assessments.

Only by reviewing:

• the full policy wording
• the real allocation of insured capital
• the actual damage
• and how the proportional rule has been applied

is it possible to determine whether capital compensation can be used.

Sometimes, there is still room for improvement if the claim is properly reviewed.

Conclusion

Capital compensation is not a universal solution, but when applicable and correctly applied, it can completely change the outcome of an insurance claim.

In many cases:

• it was not applied
• it was overlooked
• or it was not properly justified

Reviewing these aspects can make the difference between accepting a reduced settlement or correcting it.

Is your compensation lower than expected?

We review whether capital compensation, underinsurance or policy application has been handled correctly.
Sometimes, there is still room for improvement.

Review your case with no obligation.

Final note

In other situations, the key issue is not only capital compensation, but how multiple insurance policies interact, such as community and private policies.
We will address this in a dedicated article.