Best Practices for Mobile Machinery Claims

As much as $1 billion of mobile off-road equipment, such as that used in construction and farming, is stolen each year. This is due to the lack of physical security on equipment and at worksites as well as the ease with which stolen off-highway equipment can be sold since it is not titled and registered.

What may be more of a concern for insurance companies is how seldom stolen equipment is recovered. Compared to auto recovery rates that have consistently been above 60% in recent years, equipment recovery rates, although hard to measure accurately, are as low as 10%. Worse yet, due to poor record keeping, recovered equipment that was previously the subject of an insurance settlement sometimes does not get returned to the insurance company. In the case of damaged equipment, values assigned to a machine often are incorrect because the machine data is incorrect.

But there is some good news. The industry recently has taken steps to address many of the issues that relate specifically to equipment claims, primarily through the Insurance Services Office and the National Insurance Crime Bureau. Adjusters who know how to maximize the use of industry-wide systems such as these are ahead of the competition and make life riskier for equipment thieves.

Here are a few of the techniques and resources used by the industry’s most successful adjusters:

Serial Numbers
Like the VIN of an auto, it’s all about the serial number when it comes to equipment. This is where many of the problems lie. In many cases, an adjuster will receive a notice of loss that either does not have a machine serial number or has an incorrect or incomplete serial number. There are two things an adjuster should do:

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What if the owner says that he does not have a serial number? He should, but if he insists that he does not, the adjuster either can advise the policyholder to call the person that he bought the machine from or he can make that call himself. If it was a dealership or auction company, good records generally are kept. If this does not produce a result, use the resources here to find an expert who will use industry databases to research the machine. A better ”best practice” is to address the missing serial number issue before the theft occurs.

Before the Theft
It may seem obvious to say that policyholders should record the serial numbers of their valuable machines accurately, but in practice it is not so easy—particularly if a blanket insurance policy is in place. Note also that equipment owners often will assign and stencil their own inventory control numbers to a machine. This is usually not the serial number and may be why they do not record the serial number. The challenge is to get underwriters to understand the importance of having policyholders record their serial numbers (a minor challenge), and then to persuade insurance agents and policyholders of the genuine value—to them—in recording serial numbers (a major challenge). One method that many equipment insurers use is to offer a deductible waiver for policyholders who preregister their fleet on the NER database. To do this across an entire book of business is a long term project but, in the short term and at the very least, an insurer should have this discussion with a policyholder after a loss has occurred. That is something a claims adjuster can initiate even if loss prevention or underwriting actually offers the advice.

Proof of Ownership
Proof of ownership generally is harder to establish than it is for an auto loss because off-highway equipment is not subject to mandatory titling and registration. Although unlikely, it is possible and not illegal for an insured to have little or no documentation. The first step is to ask for a Manufacturers Statement of Origin (MSO). The challenge here is that these are not issued universally, nor is it mandatory to retain one—but it’s worth asking for all the same, even if just to demonstrate knowledge. The next step is to ask for a bill of sale and, if in doubt, call the listed seller. A signed statement from the insured may be the best documentation that an adjuster has. If reported correctly to ClaimSearch, an NER analyst also will run the serial number against millions of ownership records as an additional check.

Year of Manufacture
A common mistake in equipment loss reports is an incorrect year of manufacture. Unlike auto model years, an equipment model may be produced for a number of years. For example, a machine made in 2006 that is sold in 2007 may sometimes be recorded as a 2007 machine. While this may not have a major impact on value, greater variations in year of manufacturer will. It is important to confirm the year of manufacturer using the serial number and industry resources.

Customer Service
One area that can influence client retention and should be improved is the interface between claims, loss control and the policyholder. After a theft, an insured not only is upset but also is more receptive to constructive advice about theft prevention or safety. For example, following an equipment theft claim, a ”theft response” package that gives practical theft prevention and safety advice should be offered to the policyholder. This demonstrates to the policyholder that the insurer understands the challenges and wishes to help. As this might vary from project to project, it is good to provide a broad range of advice; this also allows the template to be standardized. Loss prevention also may include information about security products, particularly when an insurer is able to negotiate a discount for policyholders.

An insurer should bear in mind that, as noted above, equipment is relatively easy to steal, so the fact that a policyholder had a machine stolen does not necessarily mean that he is a bad risk. He may be, but this should not be assumed. One benefit of constructive contact with a policyholder is that his response to this advice may help to assess future risk.

Help Law Enforcement to Help You
Although an officer is likely to call the NICB and be able to run the serial number of a suspect machine against the ISO, NICB and NER databases, the first place that an officer will go is the National Crime Information Center (NCIC). The claim will have a police case number, but has the loss actually been entered into the NCIC? If it is in the NCIC, was the serial number entered correctly? Finally, on settlement of a claim, has a letter of the insurer’s interest been sent to the reporting agency?

Hire An Expert
In addition to the resources listed here, there are many independent adjusters who have significant expertise in handling equipment claims. A good source of information on such people and companies is the National Truck & Heavy Equipment Claims Council, whose member adjusters have been vetted for subject matter knowledge.

Good claims adjusting is a competitive advantage for an insurer both in terms of increasing recoveries and customer retention. This is particularly true in equipment claims given the huge chasm between the best and worst practices—not only between companies but sometimes within a company. It often is said that experience and subject knowledge are the overriding factors in a good claims adjuster. Increasingly, however, the knowledge and effective use of external resources is a critical factor; a good adjuster may not know the answer, but knows who to ask.

David Shillingford is the founder and president of the National Equipment Register, a national database of stolen construction equipment and equipment ownership.For more information, visit www.nerusa.com