On schedule: 4 ways to keep construction equipment insurance up to date

Authored by AXA XL’s Russell Crooks and Frank Basich

As the saying goes, no one truly appreciates what they have until it’s gone. There is a lot of truth in those words.

That it is especially true after a company files an insurance claim. Contractor’s Equipment insurance offers valuable protection to help contractors recover in the event of a loss. Accurate and up-to-date information is critical to ensure adequate insurance coverage. Unfortunately, not everyone appreciates accurate information as much as AXA XL.

Good habits were broken during the global pandemic. Brokers were unable to visit their clients and assess their equipment insurance needs. And now, there are other factors impacting equipment valuation.

For one, owners underestimate their equipment values. Contractors must know the value of their equipment to ensure appropriate insurance coverage. This will assist in making the insured whole following a loss. Additionally, replacing equipment comes at a much higher price tag in the current economic environment.

Businesses also overlook the addition of newly acquired equipment to their insurance policy schedule. This creates serious cover gaps when claims occur.

On the rise

The demand for construction equipment globally is increasing rapidly due to economic growth, planned infrastructure activities, and a variety of other factors. Because of high demand and supply chain shortages, new equipment costs are increasing.

For example, Tokyo-headquartered Hitachi Construction Machinery announced it will raise the price of its equipment by 8% this year. The company said the decision was based on the impact of the rising cost of energy and materials – the latter due in part to global supply chain issues.

Since new equipment is more expensive, contractors are trying to maintain their current inventory. Some contractors purchase used equipment to curb expenses…. resulting in in a higher cost of such used equipment.

Theft continues to be a big issue. According to the National Equipment Register, a national database of stolen heavy equipment, $400 million in backhoes, jackhammers, trucks, and other construction gear are stolen each year. Add the higher values of equipment to the equation and theft has become even more lucrative.

On schedule

To insure Construction Equipment, underwriters require an updated schedule. This detailed list of covered items is typically attached to the original policy or kept on file with the insurer. The coverage underwritten therefore applies exclusively to items listed in an agreed-upon schedule on the date submitted. A certain amount of coverage may also be offered for “unscheduled equipment.”

Typically, equipment under $5,000 is covered as unscheduled equipment. Equipment more than $5,000 needs to be scheduled by the insured. That means providing the insurer an itemized list with values, serial numbers, and model type.

Schedules are invaluable because they provide an inventory of what should be covered and its value. Accurate values, even for older equipment, is increasingly important. If an insured reports equipment valued at $85,000, but following a loss, finds out that replacement equipment will cost $150,000, they are shouldering the $65,000 difference. This payment may be further reduced due to a coinsurance penalty and actual cash valuation.

Schedules are invaluable because they provide an inventory of what should be covered and its value.

Improving accuracy

Contractors should work diligently with their brokers and insurers to ensure their equipment reflects current and correct information. Once the contractor has updated their equipment schedule with appropriate values, concerns over exposures to inflation may be addressed by an Inflation Guard endorsement. The broker can inquire with their carrier if this endorsement is available.

Here are four things to be aware of:

Each piece of equipment is unique. Insureds buy and sell equipment that may be the same type of item, e.g., backhoes. However, the equipment values, serial numbers and descriptions are different. If the policy expires and the schedule is not updated to include recent purchases, the new equipment may not be covered. This includes new equipment similar to items already scheduled.

Accurate serial numbers. Insurers often receive schedules with accurate descriptions, but inaccurate serial numbers. Serial numbers are unique identification codes. They assist in tracking an item and provide additional information when sourcing replacements or compatible parts. Verify the serial numbers on your schedule are accurate annually.

Blank is bad. In most situations, contractors will send their insurance schedules to their brokers, who then forwards the schedule to the insurance carrier. However, if the schedule is missing inventory or the value for insurance purposes is blank, no coverage is provided. Ensure every item lists its accurate Actual Cash Value (ACV). There are various ways to check values online, e.g., sourcing a used machinery dealer actively selling similar equipment. The dealer will provide the market value today as opposed to a random asking price online.

Newly acquired equipment. Contractor’s Equipment coverage, such as that provided by AXA XL, typically gives insureds a little leeway when acquiring a new piece of equipment. Many contractors buy additional equipment after the policy inception date. To address this exposure, policies often include a new acquisition limit. The broker should ask the insurer to adjust this limit, however, to reflect any high-valued equipment the insured will purchase during the policy term. Subsequently, remember to include items purchased during the expiring term in the renewal schedule.

When a claim occurs for equipment not included in the initial schedule, having a strong underwriting relationship can help. Insurers may “look for coverage” for items not listed on the schedule, often using the unscheduled equipment limit. While some coverage may address a portion of the loss, it often is not enough to make the insured whole.

And as that saying goes, no one truly appreciates what they have until it’s gone. Accurate and up-to-date information helps insurers effectively protect equipment and speeds up the claims process to make insureds whole.