Agreed Value vs Market Value for Machinery

What Agreed Value Machinery Insurance Covers

Agreed value machinery insurance is a form of plant and equipment cover where the payout on a total loss is fixed at the sum insured declared at the start of the policy, rather than being determined by market value at the time of the claim.

Depending on the policy wording, cover typically extends to:

• Physical loss or damage to the insured machine from accidental causes
• Total loss settlements at the agreed value (subject to valuation conditions)
• Partial loss and repair costs, up to the agreed value
• Salvage and recovery costs where the machine needs to be retrieved or transported for repair
• Attachments and ancillary equipment, where listed on the schedule
• Appreciation in value, under policies that include an appreciation provision

What's covered, and how the agreed value is applied, varies significantly between insurers and policy wordings. Some wordings include conditions around how the agreed value is substantiated and what happens if it exceeds market value by a material margin. Talk to your broker about whether the specific wording on your policy protects you the way you think it does.

What Affects the Premium on Agreed Value Machinery Insurance

Several factors influence what you'll pay for agreed value machinery cover. Understanding them helps you make sense of the premium, and avoid paying for the wrong structure.

• The agreed value (sum insured): Higher agreed values mean higher premiums. But setting the sum insured too low to save on premium creates an under-insurance problem that costs far more at claim time.
• Machine type and age: Specialist or older machines can attract higher premiums, particularly where replacement parts are scarce or the risk profile is higher. Age also affects how insurers view the relationship between agreed value and market value.
• Hours and condition: High-hours machines or those in poor condition may be assessed differently by insurers. Some wordings require a condition report or inspection before cover is bound.
• How the machine is used: Operating environment matters. Machines used in high-risk conditions, steep terrain, demolition, underground work, typically attract higher premiums than those used in lower-risk applications.
• Claims history: A history of frequent or high-value claims will affect the premium and, in some cases, the terms available.
• Whether a valuer's report is provided: Policies backed by a current valuation may be structured differently to those where the agreed value is declared without independent substantiation.

This is general information only. For a quote based on your specific machines and circumstances, get in touch with our team.

Your Machine Is Worth More Than You Think, Until You Claim

Most machinery owners set a sum insured once, at policy inception, and don't revisit it. The machine keeps working, the premium gets paid, and the policy renews on autopilot. Then something goes wrong, a total loss, a serious accident, a machine that can't be repaired, and the payout doesn't come close to what it costs to replace.

That's not bad luck. That's a valuation problem.

Agreed value machinery insurance is supposed to solve this. Lock in the value upfront, know exactly what you'll receive if the worst happens. Simple in theory. In practice, it's more complicated, and the gaps between what you think you're insured for and what you'll actually receive can be significant.

This page explains how machinery valuation works, why agreed value policies don't always pay what you expect, and what to check before you need to find out the hard way.

Agreed Value vs Market Value: What's the Difference?

Agreed Value

An agreed value policy sets a fixed sum insured at the start of the policy period. If your machine is written off, the insurer pays that agreed amount, subject to the policy's conditions, with no argument about depreciation, no negotiation about what the machine was worth on the day of the loss.

That certainty is the whole point. For plant and machinery, where values can be volatile and replacement costs unpredictable, knowing exactly what you'll receive matters enormously.

Market Value

A market value policy works differently. Instead of a fixed payout, the insurer determines what your machine was worth immediately before the loss, typically by looking at comparable machines that have sold recently or are currently available on the market.

For older or depreciated machines, market value settlements can be significantly lower than what it actually costs you to replace the machine and get back to work. That gap is the risk.

Why the Distinction Matters in Practice

Here's where it gets important. Some specialist plant policy wordings don't treat agreed value as an unconditional guarantee. If the agreed value you've declared is more than a certain percentage above the machine's market value, the insurer may only pay the lower market-based figure, not the agreed value shown on your schedule.

So you could have a policy that says "agreed value" on the front page, and still receive a market value settlement at claim time, simply because the sum insured you declared was too high relative to what the machine was actually worth.

That's not a technicality buried in fine print. It's a feature of some plant wordings, and it can catch people out.

Why Agreed Value Policies Sometimes Pay Less Than Expected

The Valuation Gap Problem

Say you insure a machine for what you paid for it three years ago. The market has moved since then, maybe values have softened, maybe the machine has depreciated more than you realised. At claim time, an insurer looks at what comparable machines are actually selling for and determines your agreed value was materially above that.

Under some policy wordings, the insurer is entitled to settle at the lower market figure. You've been paying a premium based on the higher agreed value, but the payout reflects the lower market reality.

The reverse problem also exists. If your machine has appreciated, good used plant has held value strongly in recent years, and your sum insured hasn't kept pace, you're under-insured. A total loss pays out less than it costs to find a comparable replacement.

Both scenarios are avoidable. Neither gets fixed without someone actually reviewing the policy.

When a Valuer's Report Makes the Difference

Some specialist plant wordings can require the agreed value to be substantiated by a qualified valuer's report before it will be honoured in full at claim time. Not just a figure you've declared, an actual assessment from someone with demonstrable knowledge of that machine type and the New Zealand market, backed by evidence of comparable sales.

Without that, the insurer has grounds to challenge the declared value and settle on their own assessment of market value instead.

This is particularly relevant for high-value, specialist, or older machines where market comparables are harder to find. A professional insurance valuation isn't just paperwork, it's the thing that makes your agreed value stick.

Appreciation Provisions: When Your Machine Goes Up in Value

Some plant policies include an appreciation provision, an extension that covers increases in your machine's value beyond the sum insured, up to a specified percentage.

This matters in markets where good used plant is scarce and prices are rising. If your machine appreciates between the time you set the sum insured and the date of a loss, an appreciation provision means you're not automatically under-insured just because values moved.

But appreciation provisions have limits. They're not a substitute for keeping your sum insured current. And they don't apply if the original agreed value was already set too low, they extend from whatever base you started with.

Check whether your policy includes an appreciation provision, what the cap is, and whether it applies automatically or requires you to notify the insurer. These details vary between wordings.

The Under-Insurance Problem Is More Common Than It Should Be

Under-insured machinery is an easy problem to fall into. It's not usually deliberate, it happens because:

• The sum insured was set years ago and never reviewed
• The machine was purchased secondhand and insured for the purchase price, not replacement cost
• The owner assumed the insurer would sort out the right value at claim time
• Finance requirements were met at inception but the policy wasn't updated as the machine's value changed

The result is a claim that pays out less than the cost of replacement. For a machine that's central to your operation, that shortfall can be the difference between getting back to work quickly and a prolonged financial problem.

Annual policy reviews exist for exactly this reason. Not to generate paperwork, to catch the gap before it becomes a claim problem.

What to Check on Your Current Policy

Before your next renewal, it's worth working through this checklist with your broker:

• Is your policy agreed value or market value? Don't assume, check the schedule and the wording.
• If agreed value, is there a market value cap? Some wordings will only honour the agreed value up to a certain percentage above market. Know where that threshold sits.
• Is your sum insured backed by a valuer's report? For high-value or specialist machines, this may be required for the agreed value to hold at claim time.
• When was the sum insured last reviewed? If it's been more than 12 months, it may no longer reflect what the machine would cost to replace.
• Does your policy include an appreciation provision? If values have risen, this could protect you against inadvertent under-insurance.
• Is your machine financed? If so, the financier's requirements may affect how the sum insured is set and how a claim payout is handled. See our guide on insuring financed machinery for more on this.
• What happens to attachments? Buckets, heads, and other attachments are often insured separately or have their own valuation requirements. Check they're listed and valued correctly.

How Different Machine Types Affect Valuation

Not all machines are valued the same way, and the right approach depends on what you're insuring.

Excavators and Diggers

Excavators and diggers are among the most commonly insured plant items in New Zealand, and easy to under-insure. Good used machines hold value well, and replacement costs can move quickly when supply is tight. If you haven't reviewed your sum insured recently, it's worth doing before your next renewal. Our excavator insurance and digger insurance pages cover the broader cover considerations for these machines.

Tractors

Tractor values vary significantly by age, spec, and condition. Older tractors in good working order can be worth considerably more than a straight depreciation calculation would suggest, particularly specialist or hard-to-replace models. A market value settlement on a well-maintained older tractor can leave you well short of what you'd need to find a comparable replacement. See our tractor insurance page for more detail.

Tracked Plant

Tracked machines, crawlers, tracked loaders, and similar plant, often operate in conditions that make valuation more complex. Hours, condition, and undercarriage wear all affect value significantly. For this type of equipment, a current valuer's report is particularly important. Our machinery insurance page covers the broader picture for plant and equipment.

What Happens When a Claim Is Declined or Short-Paid

Valuation disputes are one of the more common reasons machinery claims don't pay out as expected. If an insurer determines your declared agreed value was materially above market value, they may settle at the lower figure, and you have limited recourse if the policy wording supports that position.

This is where having a broker in your corner makes a real difference. At Gerrards, we don't just arrange the policy and step back. When a claim comes in, we work through the wording with you, push back where there's a legitimate argument, and make sure the insurer is applying the policy correctly, not just settling on the cheapest available interpretation.

If you've already had a machinery claim declined, or received a settlement that didn't reflect what you expected, it's worth getting a second opinion on whether the outcome was correct.

Getting the Valuation Right From the Start

The best time to sort out your machinery valuation is before you need to make a claim. That means:

1. Getting a current valuer's report for any high-value or specialist machine, particularly if the agreed value is based on figures that are more than a year or two old.
2. Reviewing the sum insured annually, not just at inception. Machine values move. Your policy needs to keep pace.
3. Understanding your policy wording: specifically, whether your agreed value is subject to a market value cap and what conditions need to be met for it to hold.
4. Talking to a broker who works across multiple insurers and can tell you how different wordings handle valuation, not just what one insurer offers.

At Gerrards, we have access to up to 20 insurers. That means we can compare how different plant policies handle agreed value, appreciation, and valuation requirements, and find the wording that actually protects you, not just the cheapest premium on the market.

Every business is different, and your policy needs will depend on your specific circumstances. This is general information only. For advice tailored to your situation, get in touch with our team.

One Last Thing

Insurance is only worth what it pays out when you need it. An agreed value policy that doesn't actually pay the agreed value isn't the protection you think it is.

Get the valuation right. Review it regularly. And make sure someone's checking the wording, not just the premium.