Insuring your Equipment Against Major Losses

Domingos Lopes and Rob Cruicksank, RSA
Special Collaboration

Prevention is the key to reducing the cost to your business
The potential impact of a major loss to your equipment fleet can be more far-reaching than you might expect – it could impact your ability to retain current and future project mandates, not to mention costly financial penalties associated with project delays. While insurance protects you against some of the financial shortfalls related to the malfunction, breakdown or theft of equipment, prevention is one of the most effective things you can do to ensure your business is not affected by delayed or cancelled projects. It also goes a long way in influencing your insurance premiums.

Contractors’ equipment insurance provides coverage for damage due to loss of mobile equipment, including tools and machinery. The more responsibility you take in preventing these types of losses, the better your insurability, and the lower the impact to your business. If you need guidance, an insurance broker can be a good source of information that makes sense for your needs.

In the contractors’ equipment world, three of the most common threats to your bottom line are theft, breakdown and fire. Here are a few important things to consider:

Theft
Theft is a significant concern and accounts for over 50% of all causes of heavy equipment losses. Although theft may seem difficult to control, you may be surprised to know there are several things you can do to reduce the risk of stolen equipment.

Your first line of defense against theft is to install fencing around your storage area. Where possible, ensure equipment is anchored and immobilized. Consider anti-theft devices such as locked hood side plates, locked ignition, locking steering wheel devices and locking filler caps for fuel, oil, radiators and hydraulic tanks. Maintain minimum fuel levels for equipment in transit.

Consider assigning supervisory security responsibilities including supervision of all trash removal activities. You can also hire a security guard, install video surveillance systems or put in a request with local law enforcement for regular drive-by checks of the site.

Warn potential storage site intruders with an inexpensive “Warning: No Trespassing” sign posting, and ensure equipment is alarmed. During non-working hours, ensure fuel, hydraulic or electrical systems are disabled. You can also use marking techniques on the machinery, such as affixing warning signs indicating the equipment’s VIN and serial numbers have been recorded.

Equipment safety relies on strong communication and coordination between management and employees. Theft prevention should be one of the key agenda items at regular staff safety meetings. Encourage employees, especially field workers, to take an active role in providing tips and suggestions on handling theft issues. Not only can staff bring forward valuable insight, but enlisting their input helps promote a sense of ownership and responsibility. Endorse any useful suggestions across the company to encourage collective responsibility and the sharing of good ideas.

A detailed inventory control system should be established to track equipment at all times; there are a number of good theft protection devices on the market, including unique owner-applied numbering systems and GPS trackers. These types of devices can be incredibly useful and have helped with the successful recovery of stolen equipment even in cases where the machine has been shipped halfway around the world. Customizing equipment with unique colors is another useful way to easily identify retrieved equipment.

Do not forget that theft is not always an “outside job”; prior to hiring, all personnel should go through an appropriate screening process. Instate a key control program to limit the distribution of keys within your company.

Breakdown
Since the economic downturn, regular equipment upkeep has stopped or slowed remarkably; while this may help defer costs in the short term, the long term implications can be debilitating. Failing to keep up with regular maintenance leads to higher wear and tear, which means your equipment becomes ineffective more quickly. At the end of the day, ongoing maintenance is a lot more affordable than a complete overhaul or replacement. Not to mention, sometimes parts are not easily replaceable. With a limited number of parts suppliers in many cases, owners often find themselves needing to replace a part that is either out of stock or discontinued – at best, it could mean a delayed job, at worst it could mean replacing the whole machine and even a lost contract.

Equipment breakdown is best avoided with a comprehensive and sound equipment maintenance policy, which is usually based on the manufacturer’s specifications. This should include a regularly scheduled preventive maintenance program, with details recorded in maintenance and inspection logs. Make sure you also have a proactive troubleshooting program in place; in particular, parts that are prone to extreme wear require close and regular inspection. Ultimately, time spent on regular checks and preventive maintenance will help avoid wear-point failure and other potential problems.

Take special care when selecting your equipment as well as the people who will operate it: good quality equipment and reliable, well-trained operators are essential to preventing injuries to workers, costly damage and project delays.

Fire
A fire risk is hazardous to both your equipment and your people. Common causes of fire include lack of proper preventive maintenance, improper fueling of equipment, use of equipment around open fires, or improper storage of equipment and material (i.e., poor housekeeping). Nonetheless, fire is another threat that can be easily mitigated by applying some proper planning and common sense.

Equipment should be kept away from hazardous locations and potential sources of fire, such as gasoline and flammable liquids and gases found in tanks and other containers. Make sure equipment is always parked away from dry grass or bush areas.

Preventive maintenance against fire risk should include immediate repairs to fuel leaks, periodic checks of battery cables, connections, ignition wiring, motors and engines. Periodic pressure washing and cleaning is also vital.

Make sure your site is firefighter-friendly. An adequate water supply and accessible hydrants are primary requisites for fire protection. If this is not possible on your site, ensure some type of static water storage is available and reserved for firefighting purposes. A filled operable fire extinguisher should be mounted on all heavy equipment units, and located away from the fuel system during refueling.
High value and high hazard equipment should be strongly considered for installation of special automatic fire extinguishing and suppressing systems. This type of installation is a good idea for equipment used in the oilsands, for example.

Protecting your equipment means investing in the profitability of your business. A comprehensive review of your equipment assets and some thoughtful planning will go a long way in advancing your success. Making smart decisions with your equipment can also make it easier for you to find an appropriate insurance partner and can assist with insurance rates. If you have npt yet established a loss prevention plan and need some advice, contact an insurance broker who can point you in the right direction.

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RSA is a trade name of Royal & Sun Alliance Insurance Company of Canada.

Domingos Lopes is director, National Risk Control Services at RSA. He has more than 23 years of experience in Loss Control. Mr. Lopes holds his Professional Engineering (P.Eng.), Chartered Insurance Professional (CIP) and Canadian Risk Manager (CRM) designations.

Rob Cruickshank is the Practice director, Construction & Renewable Energy at RSA. Mr. Cruickshank has over 25 years of experience in the property and casualty insurance sector and is a member of the Canadian Construction Association (CCA), Canadian Construction Documents Committee (CCDC) and Nuclear Insurance Association of Canada (NIAC).