by James Bishop
Senior Underwriter at Consort
Plant All Risks insurance as we know it today started as an insurance product in the 1970’s in South Africa. This at the time was rather limited to the “Yellow Machine” only, i.e. Graders, Front-End Loaders, Cranes and the like. Cover was limited to own damage only and confined to the contract sites only where the works would be conducted and during the Period of Insurance.
The basis of cover was always on a New Replacement Value or Market Value basis of insurance. Plant All Risks underwriting can be relatively simple to underwrite and can create large incomes as well as large claims. Going rates were from 2.5% to 4.0% depending what plant items were insured.
Newly trained underwriters need to understand the impact of the plant all risks cover and terms of the different disciplines that these plant items are exposed to.
Through the years the Engineering Underwriter has experienced many problems with claims handling in respect of settlements. The application of average, incorrect values declared at inception have now resulted in many disputes. Many new entrants into the market create competition, resulting in the rates we see today, 0.75 %, and even lower!
One of the major problems has been the disclosure of Market or New Replacement Values to Underwriters at policy inception or at renewal. Unfortunately, there is no “guide” as per what can be used, as by the Motor Underwriters to establish the exact insured value to apply. Many suggestions have been made to try to overcome these problems by Underwriters, contacting the suppliers of plant equipment to establish the correct new replacement values. Other suggestions were made to apply a depreciation of 15% per annum to the New Replacement to obtain the acceptable Market Value at the date of cover required to hopefully eliminate average.
The Motor Underwriters writing ‘motor special’ types were under pressure and under attack by the Plant All Risks Underwriters which resulted in a significant book of business lost to the Engineering underwriters at undesirable terms which have not been profitable. Today we are seeing items like tipper trucks, heavy haulage vehicles, and the like now covered under the plant policies!
The other challenge the Plant All risks underwriters are experiencing, is being in competition with the fire and assets Underwriters. The fire Underwriters may offer the client fire and allied perils cover at 20% of the full comprehensive plant pricing, resulting in a loss of business to the plant insurer. The client is therefore not enjoying the cover he needs, i.e. tool of trade risks not insured under the assets.
Furthermore, all road risks, off site risks and public liability cover has slowly crept into the Plant All Risks cover at exceptionally high limits and low premiums just to increase income. Cover for windscreens has also been included at very high limits and low income and claims escalated tremendously. It was seen to be uneconomical to appoint loss adjustors to assess these losses which resulted in a ‘’soft claim’’ and paid with little or no negotiations.
The solution to try and make this specialist business more attractive and profitable is to be selective on acceptance, loss adjusting to be accurate and the bottom line premium commensurate to the risk, coupled with a very good understanding of the risks what the plant items will be exposed to, with adequate deductibles bearing in mind the repair cost and the imports of spares.