Many ISR policies contain provisions dealing with reinstatement and replacement of damaged property.

These provisions can allow a claim to be settled on the cost of rebuilding, replacing or repairing property rather than simply using its depreciated value.

How can reinstatement work for buildings? #

Where the policy conditions are satisfied, an insured building may be repaired or rebuilt following insured damage.

The cost can include replacing the damaged property with modern equivalent property, subject to the policy terms.

What about machinery and equipment? #

Replacement provisions can similarly apply to machinery, plant and equipment.

The settlement may reflect the cost of replacing damaged property with new property of a similar type or capacity, subject to the policy wording.

Does the insurer always pay the full replacement cost immediately? #

Not necessarily.

ISR wordings can contain conditions around:

• Reinstatement actually taking place.
• The timeframe for reinstatement.
• The location of the replacement property.
• Changes to the business.
• Limits and declared values.

If the property is not reinstated or replaced, a different basis of settlement may apply.

Why do valuations still matter? #

Reinstatement cover does not remove the need for accurate asset values.

Buildings and equipment should be valued based on the basis required by the policy rather than historic purchase prices or accounting values.