Underinsurance and the proportional rule: why insurance pays less than expected

One of the most frustrating situations after a loss is discovering that, even though the insurer accepts coverage, the compensation is far lower than expected. In most cases, the reason lies in two key concepts: underinsurance and the proportional rule.

This article explains what they are, when they apply, when they should not apply, and how compensation can still be defended.

What is underinsurance

Underinsurance occurs when the insured capital is lower than the real value of the property or assets insured. It commonly affects buildings and contents in homes, businesses and communities.

Common causes include outdated policies, underestimated reconstruction values, incomplete inventories and undeclared installations or improvements.

What is the proportional rule

When underinsurance exists, insurers often apply the proportional rule, meaning compensation is reduced in the same proportion as the underinsured capital.

This explains why a covered claim may still result in a significantly reduced payment.

When the proportional rule should not apply

The proportional rule is not automatic in all cases. Many policies include clauses that limit or eliminate its application.

Clauses that may limit underinsurance

These may include first-loss clauses, tolerance margins, express waiver of proportionality, guaranteed capital or automatic indexation.

Such clauses are often found in general conditions and may be overlooked without a detailed review.

Underinsurance and compensation schemes

In claims handled by public compensation bodies, assessment follows legal criteria and the original policy wording. Any tolerance or margin depends on the policy terms rather than a universal percentage.

Total loss of contents

In severe losses such as floods or fires, contents may be considered a total loss when recovery is technically or economically unviable.

Correcting underinsurance

Errors often arise from generic reconstruction values or incomplete assessments. A technical review can significantly improve outcomes.

Conclusion

Underinsurance and proportional reduction are major reasons for low compensation. Understanding and reviewing them properly can make a substantial difference.

Think your compensation is too low?

We review policies and assessments to determine whether the proportional rule has been correctly applied and whether there is still room for improvement.