{"id":1346,"date":"2017-08-02T10:50:09","date_gmt":"2017-08-02T10:50:09","guid":{"rendered":"https:\/\/pamstaging.securenow.in\/insuropedia\/?p=1346"},"modified":"2026-04-01T10:08:03","modified_gmt":"2026-04-01T10:08:03","slug":"what-is-average-clause-workers-compensation-insurance","status":"publish","type":"post","link":"https:\/\/securenow.in\/insuropedia\/what-is-average-clause-workers-compensation-insurance\/","title":{"rendered":"What is Average Clause in Workers Compensation Insurance?"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div><p>An average clause in <a href=\"https:\/\/securenow.in\/group-insurance\/workmen-compensation-insurance\">workmen&#8217;s compensation insurance<\/a> comes into play when the absolute number of employees changes during the term of the policy. The change in the number of employees can be due to the joining of new employees or the exit of old employees once the policy comes into force. Workman compensation is an unnamed insurance policy. This means that individual workers do not need to be named. However, an absolute number of workers needs to be provided. To address the gap in the number of employees (or average income) covered and the actual number of employees, the existing insurer can prorate the sum assured to cover all available employees under this clause.<\/p>\n<h2 data-path-to-node=\"5\">Key Takeaways<\/h2>\n<ul data-path-to-node=\"6\">\n<li>\n<p data-path-to-node=\"6,0,0\"><b data-path-to-node=\"6,0,0\" data-index-in-node=\"0\">The Unnamed Advantage:<\/b> You don&#8217;t need to submit a list of names. The policy covers whoever is on your payroll, provided the <b data-path-to-node=\"6,0,0\" data-index-in-node=\"124\">absolute number<\/b> of workers is accurate.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,1,0\"><b data-path-to-node=\"6,1,0\" data-index-in-node=\"0\">The Prorating Penalty:<\/b> As seen in the Craft Moulders case, increasing staff from 100 to 130 without updating the policy turned a \u20b93,000 payout into \u20b92,308. The employer had to pay the remaining \u20b9692 per 15 days from their own funds.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,2,0\"><b data-path-to-node=\"6,2,0\" data-index-in-node=\"0\">Wages vs. Headcount:<\/b> The clause doesn&#8217;t just look at how many people you have; it looks at <b data-path-to-node=\"6,2,0\" data-index-in-node=\"91\">how much you pay them<\/b>. If you give significant raises or hire higher-salaried staff, your policy must be updated to reflect the new &#8220;Average Wage.&#8221;<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,3,0\"><b data-path-to-node=\"6,3,0\" data-index-in-node=\"0\">Category-Specific Caps:<\/b> Insurers often group workers (e.g., Drivers, Machine Operators, Office Staff). The insurer&#8217;s liability is capped at the <b data-path-to-node=\"6,3,0\" data-index-in-node=\"144\">average wage of that specific category<\/b> unless you provide documented proof of a higher wage beforehand.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,4,0\"><b data-path-to-node=\"6,4,0\" data-index-in-node=\"0\">The Date of Accident is Key:<\/b> The insurer doesn&#8217;t care how many workers you had when you <i data-path-to-node=\"6,4,0\" data-index-in-node=\"88\">bought<\/i> the policy; they care how many you have on the <b data-path-to-node=\"6,4,0\" data-index-in-node=\"142\">date of the accident<\/b>.<\/p>\n<\/li>\n<li>\n<p data-path-to-node=\"6,5,0\"><b data-path-to-node=\"6,5,0\" data-index-in-node=\"0\">Medical Expenses are Not Immune:<\/b> Many employers mistakenly believe medical bills are paid in full. In reality, if the Average Clause is triggered, <b data-path-to-node=\"6,5,0\" data-index-in-node=\"147\">medical costs are also prorated<\/b>, leaving the employer liable for a portion of the hospital bills.<\/p>\n<\/li>\n<\/ul>\n<h2>Conditions in which the average clause applies<\/h2>\n<p>The average clause applies to the policies with the following conditions:<\/p>\n<ul>\n<li>If the <strong>insured lists a lower number of employees<\/strong> under the policy than the actual number of employees at the date of the accident:\n<ul>\n<li>All the employees need not be on duty on the day of the accident.<\/li>\n<li>The insurer will indemnify the firm proportionately,<\/li>\n<li>The sum would be prorated to ensure that all the employees employed at the date of the accident are covered proportionately to the number of employees listed under the policy.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li>If the <strong>company (insured) has declared a lower amount of wages<\/strong> for this policy than the actual wages disbursed until the date of the accident:\n<ul>\n<li>The insurer has to establish that wages paid at the time of the accident are higher as compared to the wages declared in the policy by comparing:\n<ul>\n<li>The wages are declared as per average wage and number of employees.<\/li>\n<li>The wages paid at the time of the accident.<\/li>\n<\/ul>\n<\/li>\n<li>The insurer will indemnify proportionately to the declared wage over the paid wage till the date of the accident.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li><strong>The Average Wage limits Insurer\u2019s Liability:<\/strong>\n<ul>\n<li>Employer\u2019s liability is estimated basis on the higher wage for an employee<\/li>\n<li>The insurer\u2019s liability will remain limited to the average wage of the category to which the employee belongs<\/li>\n<li>However, the insurer may revise the indemnity upon receiving documents that substantiate the proof of a higher wage paid to the employee<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>Whenever multiple of these clauses apply, the insurer will opt for the clause which offers the least payment to the insured (the employer).<\/p>\n<p><strong>Additional Read: <\/strong><a href=\"https:\/\/securenow.in\/insuropedia\/what-are-duties-employer-worker-compensation-insurance-time-loss\/\">What are the Duties of the Employer Under Worker Compensation Insurance at the time of loss?<\/a><u>\u00a0<\/u><\/p>\n<h3>Case on Average Clause in Workmen Compensation Insurance<\/h3>\n<p>Craft Moulders Pvt. Ltd. is one of the largest wood furniture suppliers in India. Total employee strength there stood at 122 when they renewed their <a href=\"https:\/\/securenow.in\/group-insurance\/workmen-compensation-insurance\">worker compensation insurance<\/a> for 2017. Craft\u2019s promoters started another manufacturing unit in Mysore early this year due to the popular demand.<\/p>\n<p>The promoters transferred 15 employees from Craft Moulders to the new unit to establish the manufacturing in full swing. In June 2017, Craft Moulder had only 100 employees remaining. Shobh Ram, an employee at Craft, suffered injuries while unloading the wooden logs from the carrier.<\/p>\n<p>His treatment at the hospital lasted for about three weeks. Under workmen compensation insurance, a claim was filed and he was paid as per his monthly salary.<\/p>\n<p>The new setup saw many new workers joining the unit. The worker strength went up by 30 to130 in July 2017, from the time of purchase of the policy.<\/p>\n<p>The insurance covered 100 employees at an average income of Rs. 15,000 per month. On July 15, two employees suffered injuries while transporting goods by road. They were hospitalized for a month at least, and they could resume work only after about two months. As per the claim filed in this case, the insurer will only bear the prorated claim as per the new average wage and number of employees in the firm. Craft Modular had to bear the remaining amount.<\/p>\n<p>The amount of claim as per their monthly salaries for both the driver and worker can be about Rs. 12,000 (Rs. 3000 payable every half month for two months). The insurer will prorate the amount as per the new employee strength of the company:<\/p>\n<p>3000 \u00d7 100 \u00f7 130 = Rs. 2308 per half month.<\/p>\n<p>Craft Modular Pvt. Ltd had to pay the remaining Rs. 692 per half-month.<\/p>\n<h3>Summary Table: The Mechanics of the Average Clause<\/h3>\n<table data-path-to-node=\"3\">\n<thead>\n<tr>\n<td><strong>Scenario<\/strong><\/td>\n<td><strong>Condition<\/strong><\/td>\n<td><strong>Insurer\u2019s Response<\/strong><\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><span data-path-to-node=\"3,1,0,0\"><b data-path-to-node=\"3,1,0,0\" data-index-in-node=\"0\">Under-reported Headcount<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,1,1,0\">Actual employees at time of accident &gt; Number listed in policy.<\/span><\/td>\n<td><span data-path-to-node=\"3,1,2,0\"><b data-path-to-node=\"3,1,2,0\" data-index-in-node=\"0\">Prorated Payout:<\/b> Claim is multiplied by (Declared Count \/ Actual Count).<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,2,0,0\"><b data-path-to-node=\"3,2,0,0\" data-index-in-node=\"0\">Under-declared Wages<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,2,1,0\">Actual payroll at time of accident &gt; Wages declared in policy.<\/span><\/td>\n<td><span data-path-to-node=\"3,2,2,0\"><b data-path-to-node=\"3,2,2,0\" data-index-in-node=\"0\">Proportionate Indemnity:<\/b> Payout is reduced based on the wage gap.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,3,0,0\"><b data-path-to-node=\"3,3,0,0\" data-index-in-node=\"0\">Category Mismatch<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,3,1,0\">Employee&#8217;s wage exceeds the average for their listed category.<\/span><\/td>\n<td><span data-path-to-node=\"3,3,2,0\"><b data-path-to-node=\"3,3,2,0\" data-index-in-node=\"0\">Liability Cap:<\/b> Payout is limited to the declared average for that category.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,4,0,0\"><b data-path-to-node=\"3,4,0,0\" data-index-in-node=\"0\">Multiple Discrepancies<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,4,1,0\">Both headcount and wages are inaccurately reported.<\/span><\/td>\n<td><span data-path-to-node=\"3,4,2,0\"><b data-path-to-node=\"3,4,2,0\" data-index-in-node=\"0\">Minimum Payout:<\/b> Insurer applies the clause resulting in the least payment.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span data-path-to-node=\"3,5,0,0\"><b data-path-to-node=\"3,5,0,0\" data-index-in-node=\"0\">Medical Costs<\/b><\/span><\/td>\n<td><span data-path-to-node=\"3,5,1,0\">Treatment expenses incurred during the accident.<\/span><\/td>\n<td><span data-path-to-node=\"3,5,2,0\"><b data-path-to-node=\"3,5,2,0\" data-index-in-node=\"0\">Prorated Coverage:<\/b> Hospitalization and med-bills are also scaled down.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2>Conclusion<\/h2>\n<p>Under the average clause, the sum insured is modified by the insurance company to cover the changed number of employees, subject to certain terms and conditions. So, a lower amount will be paid if there are more workers than initially declared at the time of a claim. \u00a0However, the payment made in the above case was separate from the healthcare expenses as covered under the plan. The insurer also prorates the medical costs before payment. In the case above, since there was no change in the average wage of the employees in this category only one clause was applicable.<\/p>\n<p>The claims estimate of the amount is complicated and follows several different regulations. To know more about the WC policy or to <a href=\"https:\/\/securenow.in\/\">compare insurance quotes online<\/a>, visit SecureNow.<\/p>\n<h3 data-path-to-node=\"8\">Frequently Asked Questions (FAQs)<\/h3>\n<h4 data-path-to-node=\"9\"><b data-path-to-node=\"9\" data-index-in-node=\"0\">1. If I hire 5 new people for a one-month project, do I need to update my policy?<\/b><\/h4>\n<p data-path-to-node=\"9\"><strong>A)<\/strong> Yes. Even if the change is temporary, if an accident occurs while those 5 people are on your payroll, the Average Clause will be triggered because your actual headcount is higher than your declared headcount. You should issue an &#8220;Endorsement&#8221; to temporarily increase your count.<\/p>\n<h4 data-path-to-node=\"10\"><b data-path-to-node=\"10\" data-index-in-node=\"0\">2. Does the Average Clause apply if I have <i data-path-to-node=\"10\" data-index-in-node=\"43\">fewer<\/i> employees than declared?<\/b><\/h4>\n<p data-path-to-node=\"10\"><strong>A)<\/strong> No. If you have 100 employees but only declared 130, you are &#8220;Over-insured.&#8221; The insurer will pay the full valid claim for the injured worker, but you won&#8217;t get a refund for the extra premium you paid for the 30 non-existent workers.<\/p>\n<h4 data-path-to-node=\"11\"><b data-path-to-node=\"11\" data-index-in-node=\"0\">3. Why do insurers use the &#8220;Average Wage&#8221; instead of the actual salary?<\/b><\/h4>\n<p data-path-to-node=\"11\"><strong>A)<\/strong> Since it is an unnamed policy, the insurer uses an average to estimate its total &#8220;Sum at Risk.&#8221; If an individual worker earns much more than the average you declared for their category, the insurer will limit the payout to that average to protect itself from undeclared liability.<\/p>\n<h4 data-path-to-node=\"12\"><b data-path-to-node=\"12\" data-index-in-node=\"0\">4. Can I avoid the Average Clause by naming my employees?<\/b><\/h4>\n<p data-path-to-node=\"12\"><strong>A)<\/strong> While you can opt for a named policy in some cases, the industry standard is unnamed for ease of administration. Even with a named policy, if you fail to add a new hire&#8217;s name before they get injured, the claim could be denied entirely rather than just prorated.<\/p>\n<h4 data-path-to-node=\"13\"><b data-path-to-node=\"13\" data-index-in-node=\"0\">5. How does the insurer know if my headcount has changed?<\/b><\/h4>\n<p data-path-to-node=\"13\"><strong>A)<\/strong> During the claim investigation, the insurer&#8217;s inspector will typically ask for your <b data-path-to-node=\"13\" data-index-in-node=\"142\">Muster Roll<\/b> (attendance register) and <b data-path-to-node=\"13\" data-index-in-node=\"180\">Wage Register<\/b> for the date of the accident. Comparing these documents to your policy schedule immediately reveals any discrepancies.<\/p>\n<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"FAQPage\",\n  \"mainEntity\": [\n    {\n      \"@type\": \"Question\",\n      \"name\": \"If I hire 5 new people for a one-month project, do I need to update my policy?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"A) Yes. Even if the change is temporary, if an accident occurs while those 5 people are on your payroll, the Average Clause will be triggered because your actual headcount is higher than your declared headcount. You should issue an \\\"Endorsement\\\" to temporarily increase your count.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Does the Average Clause apply if I have fewer employees than declared?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"A) No. If you have 100 employees but only declared 130, you are \\\"Over-insured.\\\" The insurer will pay the full valid claim for the injured worker, but you won't get a refund for the extra premium you paid for the 30 non-existent workers.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Why do insurers use the \\\"Average Wage\\\" instead of the actual salary?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"A) Since it is an unnamed policy, the insurer uses an average to estimate its total \\\"Sum at Risk.\\\" If an individual worker earns much more than the average you declared for their category, the insurer will limit the payout to that average to protect itself from undeclared liability.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Can I avoid the Average Clause by naming my employees?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"A) While you can opt for a named policy in some cases, the industry standard is unnamed for ease of administration. Even with a named policy, if you fail to add a new hire's name before they get injured, the claim could be denied entirely rather than just prorated.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"How does the insurer know if my headcount has changed?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"A) During the claim investigation, the insurer's inspector will typically ask for your Muster Roll (attendance register) and Wage Register for the date of the accident. Comparing these documents to your policy schedule immediately reveals any discrepancies.\"\n      }\n    }\n  ]\n}\n<\/script><\/p>\n<h4><b>About The Author<\/b><\/h4>\n<p><strong>Rahul Kumar\u00a0<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">MBA Finance<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With a wealth of experience in the insurance industry, Rahul is a seasoned writer specializing in articles related to workmen compensation policies (WC policies) for SecureNow. With 12 years of experience in the field, he has acquired in-depth knowledge and expertise in workmen compensation insurance, understanding its complexities and nuances. Their insightful articles provide valuable insights into the importance of WC policies for businesses and employees alike, offering practical advice and guidance on navigating the intricacies of insurance coverage. Trust him to deliver informative and engaging content, backed by years of experience and a passion for educating readers about insurance-related topics.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>An average clause in workmen&#8217;s compensation insurance comes into play when the absolute number of employees changes during the term of the policy. The change in the number of employees can be due to the joining of new employees or the exit of old employees once the policy comes into force. Workman compensation is an [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_lmt_disableupdate":"no","_lmt_disable":"no","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[297,295],"tags":[60],"class_list":["post-1346","post","type-post","status-publish","format-standard","hentry","category-features-workmen-compensation","category-workmen-compensation","tag-workmen-compensation-insurance-policy"],"acf":[],"modified_by":"SecureNow","_links":{"self":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/1346","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/comments?post=1346"}],"version-history":[{"count":20,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/1346\/revisions"}],"predecessor-version":[{"id":36075,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/1346\/revisions\/36075"}],"wp:attachment":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/media?parent=1346"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/categories?post=1346"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/tags?post=1346"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}