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Risk Management

By Jayme Bates

Due to the high cost of equipment ownership, many would-be equipment owners have become equipment renters, and many of our dealers are reporting increased rental revenues versus a year ago. However, there may still be money, and risk, left on the table if you’re not currently offering some sort of rental equipment protection. There is an opportunity to increase profits through the rental department with a true value-added program. On the other hand, the needs of your rental business may be best met with a straightforward approach. Here are a few options to consider:

Option 1: Do nothing. Not offering rental customers an equipment coverage program is an option. Simply require the customer to provide a certificate of insurance that lists your dealership as an additional insured/loss payee and holds the customer entirely responsible for damage to the rented equipment. With this option, you have the least amount of control over protection from a loss, and requesting a certificate of insurance from a customer is not likely to be viewed as a value-add. This is a very straightforward approach that is not designed to increase revenue through the rental department, but provides coverage for rented equipment. With this option, it is recommended to have someone with insurance expertise ensure the certificate is valid.

• Option 2: Self-insure with a loss damage waiver. Charging a fee for loss damage waiver increases rental revenue because it is sold in addition to rental fees. The dealer only pays out when a loss occurs, so self-insurance can also increase profitability of a rental program. The down side is increased exposure to risk, large cash reserves required to cover any major losses, and increased demand for human resources or even staffing a licensed insurance provider to monitor and sell a self-insurance program. The cash required to sustain such a program could be utilized in other areas, and a self-insured claim on a policy with very limited coverage could result in an unhappy customer or even a lawsuit.

• Option 3: Rental equipment protection or loss damage waiver through a licensed insurance carrier. Many equipment dealers are now choosing this option because it increases rental revenue, limits exposure to risk, and provides a great value to rental customers. In this situation, the dealer charges a damage fee to the rental customer, a portion of which is used to pay the insurance carrier, and the balance of which goes to the bottom line. Insuring equipment with a licensed carrier can simplify rentals and ensures compliance with necessary legal exposure. This is a great option for companies of all sizes and there are many coverage options to choose from. Shop around and choose the program that makes the most sense for your business. For instance, some programs offer all-risk coverage where others only offer named perils.

In a tough economy, it is important to make sure your business offers a competitive program.

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Jayme Bates is Vice President at JT Bates Insurance Group. She can be reached at jbates@jtbatesgroup.com or 614-284-3810.