Heavy Equipment Theft and Solutions—Part 1
May 2002
In this first of four articles, David Shillingford
addresses the size and nature of the equipment theft problem and how to align
prevention with business goals and the function of management.
by David J. Shillingford
National Equipment
Register, Inc.
This article is the first of a series of four that deal with the growing
problem of heavy equipment theft, the costs that result for insurers and owners
of this equipment and what can be done by risk managers to reduce the costs
associated with equipment theft. This article will deal mainly with an analysis
of the size and nature of the problem and will discuss the first of four areas
in which theft can be tackled: aligning theft prevention with your business
goals and the function of management. The other three articles will suggest
solutions in three areas: physical measures to protect your equipment, using
data to combat theft, and finally looking at the use of technology.
What is heavy equipment? For these purposes it relates to mobile off-road
equipment, either self-propelled or towed, that is not subject to mandatory
Department of Motor Vehicle (DMV) registration and licensing.
The Theft Problem
Accurate national statistics do not exist, but all indicators point to a
huge problem that it is getting worse. Insurance reports to Insurance Services
Office, Inc. (ISO), show an increase of up to 20 percent every year since 1996
and show theft as the most common cause of loss for heavy equipment-over 50
percent of all causes of loss combined. Inland marine theft losses alone reported
to ISO in 1999 were over $120 million.
Some national surveys have suggested that the total figure could be as much
as $1 billion each year in losses and associated costs such as rentals, downtime,
wasted management time, and project overrun penalties. Perhaps the most worrying
statistic for risk managers and insurers is that as little as 10 to 15 percent
of stolen equipment is ever recovered.
Why Is Equipment Stolen? The answer is simple.
The reward for the thief is greater than the risk taken. Heavy equipment has
little physical (item or site) security and is valuable and easy to sell. The
low recovery rate is a clear indication of the low risk for a thief. If the
item is recovered, an arrest may not be made. Where an arrest is made a conviction
may not be secured. Even where a conviction is secured, the penalty is likely
to be light.
Why Is So Little Equipment Recovered? The best
way to explain this is to compare equipment recovery to that of autos. The National
Insurance Crime Bureau puts auto recovery rates at 62 percent. The staggering
difference in recovery rates is less surprising when certain key factors are
considered such as the timeframe of theft discovery, the availability of accurate
data, the complexity of equipment identification, and the nature of the used
equipment market.
Theft Discovery. The first problem in equipment
recovery is the time lapse from theft to theft discovery. A car theft will be
discovered hours, if not minutes after the crime. An equipment theft on a Friday
night might not be discovered until Monday morning. Equipment owners with larger
fleets or multi-site operations may not discover the theft for days, weeks,
or in some cases months. This provides the thief with a window of opportunity
when any investigation by law enforcement will not find a theft report. This
is a particular problem as suspicious activity such as moving equipment at a
strange time of day or on ill-suited transport is most likely to occur during
this "window." The gap between autos and equipment widens further when the availability
of ownership data is considered.
Data. If an officer stops a car in suspicious
circumstances, even if the theft has not yet been reported, the true owner of
the vehicle can quickly be determined. This cannot be done for heavy equipment,
as there is no mandated registration system for off-road equipment. The next
problem occurs when the theft is discovered.
There are a number of hurdles to a "successful" loss report unique to heavy
equipment. Without registration or title documents the owner may not have a
record of the Product Identification Number (PIN) or serial number, which is
the fundamental information needed for an accurate theft report. The owner may
have a PIN but it may be a shortened version on a warranty card, which may not
be a unique identifier.
As there is no standard format for the numbering of heavy equipment, data
entry error is common and there may be confusion as to whether to file the loss
as an "article" or a "vehicle" in national police or insurance computers. (A
standard format has been agreed for earthmoving equipment but will take many
years to implement.) The standardized 17-digit auto VIN has an algorithm that
can check the validity of the VIN which cannot be developed for the nonstandard
PINs, indeed it is difficult for the officer or adjuster to even confirm that
the equipment ever existed! An incorrect PIN renders the loss report almost
useless.
Difficulty of Investigation. To identify a
piece of equipment requires a level of expertise, which changes with the type
of equipment and degree of sophistication of the thief. Even equipment that
has not been "disguised" may have the PIN in any of hundreds of places, some
harder to find than others, with many other ID numbers of parts and attachments
to confuse the issue. Officers cannot be expected to have this level of expertise,
especially given the low priority of what is perceived as a "victimless" crime.
Officers know from experience that equipment investigations are time-consuming
and often lead to nothing but frustration and are understandably reluctant to
get involved in such investigations.
By contrast, the placement of VINs on autos is standard and the level of
training in auto theft investigations is high and well funded. It should also
be noted that physical, and to some degree legal, access to autos is much easier
than for equipment on worksites.
Used Equipment Market Regulation. The lack
of due diligence in the used equipment market is in stark contrast to that for
autos. When buying a car, title documents are exchanged and services such as
Carfax offer full vehicle histories. Until this year, nothing like this existed
in the used equipment market. This is a key consideration for a thief in assessing
the risk of getting caught. If equipment can be sold with impunity, not only
does this reduce the risk of detection but it also allows stolen equipment to
be sold at, or close to, market price.
What Can Risk Managers Do?
Although it is almost impossible to stop a determined thief from stealing
a piece of equipment, especially where equipment must be left in an unprotected
and remote location overnight, there is much that can be done. In broad terms,
theft deterrence falls into four categories: making deterrence part of the business
plan; taking simple, low-cost theft prevention measures; using data to combat
theft; and the use of technology. In this article, the first of these will be
discussed.
Align Theft Deterrence with Your Business Plan. Whether insured or self-insured, the cost of risk will be reflected by your
theft experience. It is therefore important to measure the cost of theft and
costs associated with theft like any other cost and make employees aware that
the bottom line is affected, thus having an indirect impact on them.
Costs associated with theft include: equipment replacement, short-term rentals,
the management time taken to deal with law enforcement and adjusters, wasted
labor costs due to down time, and direct or indirect penalties that may arise
if a project is delayed. Many of these will increase where rare equipment for
specialized tasks is stolen.
Even if your equipment is recovered there may be a cost due to damage or
salvage costs. If insured, some of the costs will be covered but the cost of
the deductible and future premium increases should be considered. As the insurance
market continues to harden, these effects are amplified and, in extreme cases,
may lead to a loss of coverage that affects fire and damage coverage as well.
This impact can be made more visible by linking employee incentives to theft
reduction. Further employee involvement can be encouraged by posting signs in
work areas, informing staff of the effects of equipment theft, and offering
rewards for information that leads to recovery. This may be more effectively
done through a national program where reward funding can be coordinated and
a 24-hour confidential hotline provided.
Once employees have been persuaded of the importance of theft prevention,
suggestions from staff about security procedures should be encouraged as they
are onsite and know what potential problems exist. Where positive action is
expected from employees, it is important to allow time for such action to be
carried out. Good managers will often visit worksites and if these are sometimes
unannounced and random, this may also have a positive effect on theft prevention.
Consider joining local contractors' theft prevention organizations to exchange
ideas and information about theft prevention and the pooling of resources. This
may also be a good way of establishing a relationship with local law enforcement-officers
who work with such organizations are more likely to take an interest in your
security and actively investigate your losses.
The bottom line is that a coordinated approach to deterring equipment theft
is part of good risk management, which is part of good general management. Theft
prevention does not need to be a significant cost and far outweighs the cost
of getting it wrong.
The next three articles in this series will look at many of the cost effective
measures that can be employed to deter theft.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does 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.