Warning – where parts are not available on a machinery break down policy
A broker contacted me concerned that the policy which one of his staff had arranged contained a restriction in a case where a piece of equipment has suffered a machinery breakdown and is unable to be repaired, as the parts are no longer available, and the policy limited the Insurers liability to the value of the parts if they were available.
The client was expecting a replacement piece of equipment to the nearest modern equivalent.
As the fire section of most business pack and home and contents policies are now issued on a reinstatement replacement condition, it is easy for us to fall into the trap of believing that this more generous basis of settlement than the basic principle of indemnity is available in other classes of general insurance as well.
As this broker and their client learned, this is not necessarily the case with machinery breakdown policies, whether they be standalone policies or part of a business pack.
Doing a search on PolicyComparison.com, I found that around half the policies issued in Australia have a restriction in the Machinery Breakdown coverage that limits the cost of repairs to the machine, where parts are no longer available to the cost of the parts if they were available. This in itself can create a conflict for how can you price something that is no longer available? Putting that aside, as with all general insurance products, it is important to understand the coverage afforded by the policy and make a decision on the needs of the Insured.
For the benefit of readers, I attach a product feature comparison on this issue taken from PolicyComparison.com machinery-comparison-from-policycomparison
The last point I would make is that brokers who are a member of a cluster group, should not be lulled into believing their policy is necessarily superior in this area as your policies may well contain the same restriction.