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:
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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.
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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.
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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.
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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.