It is strange that an insurer will require full details of a Ford Escort valued at £500 and its proposed driver before providing insurance and yet will not require any details of one £50,000 excavator ...
It is strange that an insurer will require full details of a Ford Escort valued at £500 and its proposed driver before providing insurance and yet will not require any details of one £50,000 excavator, let alone a fleet of 50, that they are insuring for numerous clients in the UK and Ireland.
With so much stolen equipment in circulation in Western Europe, most insurers, if they investigated the equipment portfolios they are currently insuring, would find stolen equipment among the items they are providing cover for.
The National Plant & Equipment Register (TER) is the UK national register for owned and stolen equipment. It runs a stolen equipment investigation arm supporting the police. It has recovered a considerable number of plant and equipment, which have been stolen, paid out on by one insurer, purchased by another insurer's client which they then have insured.
Not that every client seeking insurance is a moral hazard, but underwriters do themselves no favours by demanding only a fleet valuation, provided by the client, for an equipment portfolio. The opportunities for undervaluation are manifest and the underwriter removes the ability of the claims managers to challenge claims, as no schedule is ever required from an undervalued client. This leaves it difficult to assess whether the equipment was ever covered in the first place.
Needless to say, the adjustment of theft claims is not easy for loss adjusters or claims managers, as there is nothing to adjust - the equipment having been stolen. Often there is little evidence to support the equipment's ownership by the client. Much equipment circulates on sales receipts that could be, literally, as pathetic as the back of a fag packet.
So an equipment value is often only determined on a paucity of information provided by a hire company whose only interest is maximising the insurer's payment and updating their fleet thanks to theft.
Around the world
Equipment circulates globally, stolen equipment especially. But with depressed markets in the Far East, manufacturers have been left with over-capacity in their home states, which has led to a flood of "grey" imports into the Western European markets. Much of this nominally second-hand equipment does not conform to European health and safety standards, not having been CE marked or bearing false CE plates. Its use on sites in Western Europe is prohibited.
Given HM Customs & Excise and the Health & Safety Executive (HSE) have failed to prevent the entry of this equipment into the UK, it is posing what is potentially a significant liability problem for insurers and their clients if and when it is involved in an accident.
For all these reasons, TER recommends that equipment ownership and conformity to CE marking is verified by TER, a pre-loss value given, these values totalled for an accurate premium valuation and that insurers and their clients register equipment fleets with TER and keep them up to date.
The Home Office has recently written to all manufacturers and distributors of equipment in the UK to recommend they register all equipment sales with TER. They also suggested that anyone buying second-hand equipment and all equipment thefts should be registered with TER. This is a not inconsiderable endorsement by the Home Office, similar to the passing of the 45,000 police theft records from the Police National Computer for TER to correct and assimilate into its own theft database.
Meetings have recently been held in Brussels between TER and European Commission officials to discuss equipment theft in Europe. Commission officials were surprised to hear that, if the UK experience of equipment theft was replicated across the other EU member states, then Europe would have a theft problem costing somewhere between e5bn (£3.1bn) and e15bn (£9.4bn) a year.
In order to determine the nature and extent of equipment theft in Europe, TER has recommended to the commission that all national police forces be asked to forward their equipment theft records for analysis, as they have done in the UK and as TER is currently discussing with the Garda in the Republic of Ireland.
The end result would be more knowledge of the theft situation in Europe and put TER, the Commission, Europol and national police forces in a better position from which to make recommendations to tackle theft while promoting opportunities for recovery.
In tandem with this, TER has asked all its subscribing insurers to report equipment theft from around Europe. Many insurers with offices in the UK are European insurers such as AXA, Gerling, Zurich and Allianz and other UK companies such as Royal & SunAlliance and Norwich Union have offices in Europe. By centralising losses on a European scale, TER will be able to support the police across Europe and raise the level of recoveries from the continent for the UK. There will also be an opportunity to intercept continental-insured equipment, which has been stolen and is being transported across the EU to Eastern Europe and south east to Greece and the Balkans.
A number of member organisations, such as the Civil Engineering Contractors' Association and the Construction Plant Hire Association have European associations and will be introducing TER to a wider equipment-owning audience in Europe.
In the UK, TER is working with the Construction Equipment Association and the International Powered Access Federation to ensure UK manufacturers register all sales.
Banks also have a special interest in equipment, as close to 100% of new equipment sales for heavy equipment are financed in some way by banks or finance companies. Most of the banks register their interests with HPI or Experian, but an increasing number have been using TER not only to register their interest in an item of equipment, but also to search against TER's theft register prior to agreeing finance on equipment.
By centralising equipment ownership, finance and theft data on one database from across Europe, TER aims to make it industry practice to carry out due diligence on second-hand equipment, whether it is being financed, insured, purchased or sold.
It is interesting to see that TER is developing along the same lines as the Art Loss Register, whose chairman and chief executive Julian Radcliffe started TER in 1995. Both companies started by making significant recoveries of stolen items and have developed into a key part of both the art and equipment world's standard due diligence practices.
Case study: Pegson mobile crusher
In May 1999, a Pegson 800/550 mobile crusher was on display at the Site Equipment Demonstration (SED) at Milton Keynes. Following the end of the SED on May 30, 1999, the equipment sailed from Liverpool to New York, where it was sold to a US company where it continues to be at work to this day.
In August 1999, a company in the UK acquired finance on the exported crusher, using the serial number of the exported crusher and insured it with a UK insurer. In October 2000, 15 months after the equipment had been financed and insured, the equipment was reported to the police as being stolen between October 13 and October 15, 2000, from the company's premises. The police accepted it as a crime and issued a crime reference number, which was then used to make a £50,000 insurance theft claim. A loss adjuster adjusted the claim to £36,000 and recommended the insurer pay the claim.
On November 30, 2000, TER was working in support of the Central Motorway Police Group during Operation Mermaid - the interception of articulated vehicles for multi-agency checks. A number of stolen items were recovered on one vehicle, which led TER to contact the police in the area from which the equipment had been stolen.
The police there informed TER of the theft of a Pegson crusher. TER recovery co-ordinators investigated this theft, as the company claiming to have suffered the theft was known to the register from a previous police operation.
The company did not usually deal in this type of equipment and, physically, it would have been difficult to get this equipment in and out of the yard from which it had been stolen. It was then determined that the equipment had been sold to the US following the SED and TER arranged to have it inspected in New York.
A report was then supplied to the insurer, recommending the theft claim should not be paid. The insurer accepted TER's recommendation and the claim has not been paid. In May 2001 the claim was refused.
It is assessed that the company making the theft claim had viewed the equipment at the SED, taken a note of its serial number, determined from the manufacturer's sales staff that it was being exported to the US and then used this information to acquire finance and insurance.
This case may sound complex, but it is relatively simple to orchestrate. A more common fraud being perpetrated against insurers is where the client hires equipment, arranges for it to be exported and, once the equipment has been exported, he then reports the "theft" to the police. The client then makes an insurance claim, which pays off the hirer, and leaves him with the free use of or with the sale proceeds from the stolen equipment.
Case study: theft and recovery
On April 30, the Garda Síochána requested TER's assistance with the identification of two Benford 6000 dumper trucks and a JCB 803 mini-excavator during an operation in Dublin. On examining the equipment, a TER investigator recovered equipment identification numbers, which were passed to TER's office for searching.
Checks on the numbers revealed the equipment had been stolen on April 20 from Blackburn and Blackpool. The theft details were passed to the Garda who seized the equipment and TER arranged for it to be moved to secure storage.
The Garda released the equipment on May 17 and TER arranged for it to be shipped back to its legitimate owners in the UK, avoiding the payment of a total of £41,750 in theft claims by Norwich Union, ACE Europe and HSB Haughton. The first one insurer knew of the theft was when TER contacted it to say the equipment had been recovered in Ireland.