The purpose of the averaging clause is to ensure that in the event of a claim, insurers are not prejudiced by under-insurance.
The Insured (Client) should insure their property and movable assets (risks) at their full replacement value. The Insurance premium paid by the client is normally based on the assumption that the property improvements, buildings, and movable assets are insured for the full replacement value thereof.
If the value of a claim exceeds the sum insured, the insured is then under-insured with the percentage exceeding the total sum insured as per the policy schedule. Effectively the policyholder becomes the insurer for the shortfall and must therefore bear a rateable proportion of the loss.
Insurance companies deal with the uninsured (Percentage) portion by reducing or averaging the cover available to the policyholder under the insurance contract.
If the property is under insured, then the sum insured shall be averaged.