There are less visible costs or potential costs that should be considered when deciding to rent equipment and in the decision of from whom to rent, such as the safety implications of operating unfamiliar equipment. Most of these assessments and decisions fall on the risk manager's shoulders. Technological advances may make the decision-making process easier in the future.
In 1986 tax-credit laws were changed, contributing to new growth in the rental sector as contractors lost an incentive to own equipment. When purchasing equipment became a liability rather than an asset on the balance sheet, contractors began to take a closer look at rental as a cost-effective alternative. This scrutiny has shown that the percentage of time that equipment is being used must be high for equipment ownership to be the best alternative.
This realization has led to the volume of rented equipment doubling in the last 10 years and rental equipment now accounts for about 30 percent of construction equipment in the United States. This article looks at the risk of theft, how and why this varies from owned to rented equipment, and how renters can take advantage of recent efforts by rental companies to reduce these risks.
Why Is Rental Equipment at Greater Risk of Theft?
Insurers often comment that the volume of claims they see for equipment being rented by policyholders far exceeds the volume of rental equipment that they are insuring. There are a number of reasons why thieves more often target rental equipment:
- Equipment owners are less likely to make the effort to enhance the physical security of equipment that is rented, easy to replace, and less likely to be critical to long-term or repeat projects.
- Even where a renter wishes to take steps to add physical security measures, such as purpose fitted locks on cabs or engine covers, it may not be possible or cost effective to do this for equipment that is rented for a limited period of time.
- Thieves are provided with an extra, and easier, opportunity to steal rental equipment as it is often in transit or, worse, left unattended on a trailer. In some instances, thieves have even pretended to be the rental company collecting equipment.
- Thieves are increasingly using false identities to rent and steal equipment. While the rental company will most often be the victim of this type of theft, a renter may become involved if it is their identity that has been stolen and used by the thief.
Even if insured, renters may find that a rental theft has a negative impact on future costs of insurance or that the valuation used in the rental contract is not the same valuation on which the claim settlement will be based.
Low Recovery Rates
After a theft, for the person left footing the bill—usually an insurance company—the next challenge is to recover the equipment. A more detailed analysis of the generally low recovery rates can be found in a past article, Heavy Equipment Theft and Solutions—Part 1, but these challenges are compounded for rental equipment.
Recovery efforts are often hindered when rental equipment is stolen because rental thefts are less likely to be reported quickly and correctly. There are often significant delays and inaccuracies due to confusion over whether equipment has been stolen or is simply overdue, or has been returned to the rental company but not been reported at both ends. There may also be confusion over who should report the theft and to whom. And, if the equipment is identified, who is listed as the owner in the theft report: the renter, the rental company, or the insurer?
That's the bad news. Now some good news.
Rental Industry Combating Theft
The traditional selection criteria that have been used by renters—such as quality, availability, choice, product support, and, of course, price—have been joined by a new factor: "security." The increased levels of theft and the trend toward greater risk retention have given equipment owners and renters a greater focus on causes of "total loss," such as theft. This concern is now being heard by equipment rental companies who are often in a better position to take advantage of new technologies due to the scale of their operations, access to capital, buying power, and operational framework, e.g., inventory management. After all, equipment is their business.
One recent advance is the use of Global Positioning Systems (GPS) that utilize satellite technology to report the location and other key metrics of a unit. Rental companies have started to test GPS to keep a closer eye on where their equipment is and how it is being used. Trials are in their early stages, but initial results suggest that this technology shows promise in assessing the what, where, and how of equipment usage which will help rental companies get more from their assets.
Another hope is that these devices may provide a mechanism for recovering stolen equipment. So far there are only a handful of success stories, and it is not yet clear whether this is because the devices simply have not been fitted to enough units or because thieves have some way of disrupting the communications system. It is more likely to be the former, but it is also possible that as more devices are fitted, the more serious thieves will work around them as they have with other security innovations. In any case, it will make life harder and riskier for thieves.
Meanwhile rental fleets continue to test and fit more traditional "land-based" tracking systems to high-risk equipment. As these devices' primary function is theft recovery, they are usually harder for thieves to disable.
Another development in 2004 came from the realization that getting better, more accurate information to law enforcement is fundamental to improving recovery rates. For example, in March the American Rental Association (ARA) announced a partnership with the National Equipment Register (NER) that allows ARA members to register up to 1,000 machines with NER at no cost. The ARA represents thousands of the smaller rental stores that make up a large percentage of the U.S. rental industry. 1
What Should Renters Do?
When renting equipment, ask what, if any, special security enhancements have been added to units in addition to the traditional price and availability questions. Note, however, that a rental company is unlikely to be specific about what units have tracking devices added as their use is designed to be covert. Decals on the equipment itself do serve to warn potential thieves that they are more likely to be detected when moving, storing, or selling equipment. Asking these questions not only helps you decide from whom to rent, but will also encourage the adoption of these technologies.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Footnotes
More recently the three largest rental fleets in the United States have registered their entire fleets on the NER database, bringing NER's total number of records to over 11 million. NER's other major client group is the insurance industry (client list at http://www.nerusa.com/IndustriesWeServe.asp) from which most of the 70,000 thefts have been reported. NER provides a 24-hour-a-day hotline for police to seek expert advice on equipment identification and find out if the machine has been reported stolen or, if not, to whom it belongs. This has helped police recover over $4.5 million of equipment, much of it not yet discovered missing by the owner.
