Bulldozers, drills and cranes: mobile plant and equipment are big boys' toys that require specialised knowledge to cover their insurance risks.
Australian infrastructure investment had been growing at a very slow rate before the recent devastating series of natural disasters. Now, however, with an immediate need for rebuilding and with capital expenditure increasing, the market for mobile plant and specialised equipment for the construction, civil, mining and plant-hire industries is improving after three years of consolidation in the wake of the GFC.
Three significant players in designated mobile plant insurance are Underwriting Agencies of Australia (UAA), Mecon, and Lumley Insurance. Lumley offers three policy groups: Construction Works, Commercial or Heavy Motor, and Specific Mobile Plant Equipment & Machinery. UAA has an Industrial Special Plant product with seven cover options, plus ProCon, its professional liability offering. Mecon has one policy designed for customisation and employs a number of endorsements.
Most businesses we see tend to be heavily reliant on a number of key plants and Machines to perform their work, and prolonged downtime following a claim can cripple a business.
The sector ranges from standard mobile plant insurance cover, which caters for simple material damage and road risk liability, through to complex civil, construction and mining equipment policies.
So what are the risks brokers should consider when selecting the right cover?
Lumley Insurance National Engineering Manager David Kidd says “optional covers could include public liability, consequential loss, accidental overload, underground, multi-crane lifts, extended dry hire and substitute hire cost, just to name a few.”
UAA CEO Michael Murphy believes that as well as standard asset damage cover, brokers should consider financial protection to deal with business interruption.
“Most businesses we see tend to be heavily reliant on a number of key plants and machines to perform their work, and prolonged downtime following a claim can cripple a business. Other important covers are things like Basis of Settlement options, damage waivers, and cover for dry hire operations.”
Mecon MD Glenn Ross is very aware that Mobile Plant and Construction Risk is not an everyday placement for mostbrokers. “So when our underwriters perceive that a risk ought to have been considered, they’ll phone the broker to discuss the risk, or simply provide cover for it and note the quotation accordingly. Complex or varied risks should be handled by a professional underwriter.”
Another major consideration is Broadform Liability, which covers the insured’s full declared activities.
“Brokers need to be aware that a number of policies in the market only provide cover for Tool of Trade exposures of the insured items on the schedule, which can possibly lead to huge gaps in cover,” warns UAA’s Michael Murphy.
The operational landscape is also becoming increasingly affected by exposure to litigation, and statutory fines for breaches of OH&S responsibilities and workplace incidents.
Melcon’s Glenn Ross sees emerging liability risks. He cites the cross- contamination of crops through genetically modified seed being carried on agricultural equipment from one farm to another. There is also potential illness caused by silicate-based products, such as from fibreglass insulation and mould in unhealthy buildings, both of which expand the definition of ‘pollution’.
The mobile crane and directional drilling sectors always keep the insurance industry on their toes.
Lumley Insurance’s David Kidd says risk is equally spread across material damage and liability. “The mobile crane and directional drilling sectors always keep the insurance industry on their toes,” he adds.
“It’s becoming increasingly important to plan for neutralising or minimising the implications and ramifications of risk,” Michael Murphy says. “The industry faces a challenge to continue to develop the expertise required to understand the complexity of the equipment, the industries they’re involved in and the associated risks.”
The future, however, is bright. “The current outlook for the 2011/12 period looks promising,” says David Kidd, “as there are indications of the market turning.”
“Things are definitely on the rise,” according to Michael Murphy. “We are seeing increasing competition in this sector. We welcome that as it keeps everybody honest, makes all of us better, and encourages us not to justsit back on our laurels.”
CASE STUDY: Rebuilding a crane
In September 2009 in the Hills district of Sydney, a two-week-old $3 million mobile crane broke through the suspended slab it was working from and was effectively written-off as a result of the fall.
At an early stage the insurer knew that the costs would be extensive – whether the machine was repaired locally, replaced or rebuilt overseas. The insurer was able to make full payment to the owner of the crane within six weeks (something of a record for a loss of this nature and magnitude in the industry) and the crane owner then considered its options.
As the supply-time for another new crane proved to be impractical, the insurer’s loss adjuster advised that a factory rebuild from the manufacturer could be a good option. The crane owner ultimately decided to follow that course and ordered an ‘as-new factory reconstruction’ from the German crane maker.
At the owner’s request, the wrecked crane was dismantled and shipped in sections back to the same German factory that manufactured it. It was entirely rebuilt as-new, shipped back to Australia, reinsured with the same insurer, and was back on the job around 10 months later. The owner has since recommended the insurer to other crane companies in the industry.
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