The market is wide open for contractors' equipment exposures. Andy Roe, commercial lines underwriter for Arlington/Roe & Co., Inc., says, “In our capacity as an MGA, we place accounts with Lloyd’s, American West Home, Nautilus, and Northfield. On the brokerage side, we work with Allianz, Chubb, and other traditional admitted markets." Chandra Kwaske, underwriting manager at the Michigan branch of Burns & Wilcox, says that she places risks with Markel, Great American, Fireman’s Fund, Max Specialty, Argonaut, and Scottsdale.
“Some of our admitted carriers, such as Century Surety, offer this coverage on a limited basis, subject to more stringent underwriting guidelines,” adds Gabriel Derzhavets, vice president at Roush Insurance Services. “Our surplus lines carriers, including Markel companies, Scottsdale, and Atlantic Casualty, also write contractors’ equipment coverage, using slightly more liberal underwriting requirements.”
Jennifer Rudisel, equipment underwriter at Britt/Paulk Insurance Agency, Inc., says “We place this business with American Alternative Insurance Corporation, an A+ admitted carrier.”
Alistair Barnes, executive vice president of AmWINS Brokerage of Texas and leader of AmWINS Energy Practice, also uses only one market. AmWINS has a special program with Lloyd’s of London and London companies directed toward equipment used in the energy industry. However, it also covers non-energy equipment, such as a recent quote for $14 million of contractors' equipment going to Haiti for use in demolition, renovation and rebuilding.
Contractors' equipment insurance coverage can be very expensive. Mr. Derzhavets says, “Some contractors prefer to insure just their more expensive equipment and assume the risk for miscellaneous tools.” Ms. Kwaske adds, “It is always recommended that the insured purchase as much insurance as it can afford. If there is a loan on certain equipment, coverage is required.” Mr. Roe notes, “The same thing may be true with leased tools or equipment, where the lessor requires the contractor to insure the equipment.”
According to our experts, cranes are among the most expensive equipment in terms of both value and cost to insure. Ms. Kwaske adds computerized equipment. Computerized equipment and/or equipment equipped with cameras can cost $250,000 or more. "Bulldozers, graders, pavers, excavators and other heavy equipment are also very expensive," according to Mr. Derzhavets. He says, “Prices for medium to large grading bulldozers start at more than $100,000 and can run close to $1 million. Graders also cost between $300,000 and $700,000.”
According to our experts, theft is a major contributing factor to loss frequency. Mr. Roe explains, “If a plumber has a truck with a toolbox in the back with wrenches, hammers and power equipment, it may be stolen by someone passing by. The tools may not be worth much individually, but the value adds up over time.”
Fire and vandalism cause the largest losses, but the frequency and severity depend on the type of equipment. Ms. Rudisel sees the highest frequency and severity in forestry risks. According to Mr. Roe, this may be partially due to the fact that contractors in the logging industry often use older equipment. In addition, so-called radical environmentalists have set logging equipment fires to protest against logging activity. Mr. Derzhavets adds, “Another reason for these types of losses is that equipment is left unattended or is heavily used in remote areas.”
Mr. Barnes places mainly energy-related business and sees a very different type of problem. “We see the highest frequency and severity in named storms [hurricanes] because a lot of our insured equipment is used in the Gulf of Mexico on platforms and drilling rigs. Although the total loss of one or more rigs is possible, there’s a good spread because there are so many rigs in the Gulf and a hurricane affects only a certain area. A fire on an offshore drilling rig or platform has a much higher potential for a total loss. For example, the Deepwater Horizon oil rig that exploded off the coast of Louisiana on April 20th was valued at $600 million.”
According to Ms. Rudisel, the keys to underwriting contractors' equipment are loss history, location and experience. Mr. Roe adds, “Another factor is the age of the equipment and how it’s protected during non-working hours.” Mr. Derzhavets says, “Underwriters typically look for a well-run business with trained employees because overall business practices frequently affect loss potential.”
Coverage for contractors' equipment can be provided on either an all risks or a named perils basis. Mr. Roe points out, “The specific perils vary by carrier, so you’ll want to look at each carrier’s form to see exactly what is named.” Mr. Derzhavets says, “Named perils coverage can be used to reduce exposure for accounts with prior claims in order to make the risk insurable again.” Ms. Kwaske adds, “Named perils coverage comes into play when there has been significant loss history, if the insured has certain types of equipment, such as logging equipment, or if we must tailor coverage to specific perils like vandalism or fire.”
All risks contractors’ equipment coverage is generally offered to risks with better controls and good loss history. However, according to Mr. Roe, “With the market being so soft now, everyone is offering the most coverage they have, but that’s not the case in a hard market.” Ms. Kwaske adds, “The use of all risks versus named perils coverage varies by carrier. It is important to communicate the coverage form you need to your carrier.”
Except for lower-valued items, contractors’ equipment is almost never written on a blanket basis. Each item is usually specifically scheduled. Small miscellaneous items within the schedule may be blanketed. Hand tools and equipment worth less than $1,000 are examples of property that may be blanketed.
Capacity is not a concern at the present time. Ms. Rudisel says her carrier can provide limits up to $30 million per location and $2 million per item. Mr. Roe indicates his markets offer limits of up to $50 million, and Ms. Kwaske explained that the excess contractors' equipment market is an option when limits exceed $1 million.
According to Mr. Derzhavets, “The insurance industry is experiencing a twofold problem with this line of business. The recession has caused a slowdown in the construction industry, including the purchase and use of equipment, resulting in a reduced need for insurance. Soft market rate decreases have contributed to the erosion of the insurance pool.” Mr. Roe adds, “A lot of standard carriers are taking contractors back. Four or five years ago, most standard carriers weren’t interested in writing new ventures, and that is how we got a lot of business. Now, many standard carriers are writing new ventures, and that business isn’t going into the wholesale market.”
The specialist is still needed. Mr. Barnes says, “In our program we can consider exposures that most carriers are not able or willing to write. We’re not going to be aggressive on risks that tend to go to the standard market. Where standard carriers are not interested in a risk, we have the flexibility to arrange appropriate coverage. It may be a bit more expensive, but the coverage will be tailored to the specific risk.”