Nick Leader, CEO at Acquis, a leading provider of quality insurance products and services to the leasing industry, looks at some of the risks that businesses can unknowingly expose themselves to by not regularly evaluating the terms and performance of their equipment finance insurance program.

Protecting the value of leased equipment in the asset finance sector is an established concept – the value of this type of protection is widely accepted as a win-win for all involved. For the end user, who often wants to gain access to equipment, this would not be possible without a protection agreement in place – and for the lessor, having quality insurance coverage for every asset mitigates the risk to their asset book. While the value of insuring leased equipment has never been in doubt, is it time to rethink the program you have in place? Are you confident all your assets are adequately protected? Are your customers getting responsive service and a fast turnaround when a claim needs to be made? And are you getting the best value deal from your insurance provider?

Often, financed equipment insurance will be outsourced to a third-party provider and this arrangement may have been in place over a number of years, which can inevitably lead to a certain amount of apathy at renewal time, if a formal renewal even exists. This apathy can lead to such programs being renewed without reviewing the terms or making sure that it fits its purpose. But in an ideal world, the renewal of any type of contract should be an opportunity to review the scope of the agreement and without this, you could be exposing your business to risks without realizing it.

The risk of being underinsured

For the lessor, you need to know all your assets are adequately protected for the full duration of lease agreements. However, in our conversations with funders in the U.S., we have been surprised at how many finance companies don’t have full visibility of whether their assets are adequately insured.

 

Under the terms of equipment lease agreements, it is the lessee’s responsibility to insure the asset, but unless the lessor is actively requesting, gathering and tracking evidence of the lessee’s own insurance, then it’s impossible for lessors to get a clear picture of their uninsured risk exposure.

This is where a post activation insurance program is beneficial—as this model brings diligence to the insurance process. A post activation insurance program means that every new lease agreement is followed up with a request for proof of insurance; where proof is not provided, the asset is automatically covered by the lessor’s own policy from day one of the finance agreement. It’s the only model that allows this win-win situation. Furthermore, when a post activation program is coupled with an insurance tracking service to follow up annually with those customers who have arranged their own insurance to make sure the asset remains insured, lessors can achieve that desired level of scrutiny and thoroughness when it comes to making sure all their assets are protected.

 

Is the end customer experiencing a frictionless process?

Another area to consider is whether or not the insurance conversation with the lessor and their end customer is unnecessarily creating friction, or even worse, derailing finance negotiations. The priority for the lessor is to provide the customer with a flexible finance solution that meets their business needs, so getting the finance agreement over the line and booking the deal swiftly benefits both the lessor and their customer. No one wants to unnecessarily prolong the contracting period yet introducing the insurance conversation has the potential to add complications at this stage. The beauty of post activation insurance is that all that can be dealt with following go-live of the finance agreement, when the customer has received the equipment and is set to go with monthly finance repayments. It simplifies the process to deal with the insurance following this stage, when the opportunity exists to outline the customer’s options with regards to insuring the equipment, and to seek confirmation that they have arranged adequate coverage for themselves or are happy to have the equipment covered by the lessor’s own policy. It makes for significantly reduced friction in the customer journey.

And even better, post activation removes any need for insurance selling or intermediation at the point of sale, which can add complexity to sales teams who need to be trained to sell insurance compliantly. With post activation there is no insurance intermediation, the lessor is the only insured party, and the equipment is protected under their own insurance policy, thereby simplifying the regulation involved.

Customer relationships

In any outsourced relationship, when a company outsources business processes to a third-party servicer, it’s imperative that the third party is strictly upholding the same standards of service and is as focused on protecting their customer relationships as they are. This is never so true as in equipment leasing, and lessors want to ensure their relationships with customers are long term.

In a competitive market where margins are pressured, anything that causes friction in the customer relationship has the potential to drive your customers to the competition. So, it’s therefore essential that lessors outsource to a company they can trust with their reputation.

Customers have come to you to lease essential business equipment that is often fundamental to the running, profitability and success of their business. So, it follows that when that equipment is out of action due to damage or loss there can be big implications for your customers. And if they need to make a claim against the insurance it’s important to appreciate from the outset that they can be in a distressed situation where they need a fast response and a quick turnaround to get back up and running as soon as possible. It’s important to ensure any insurance claims service is conducted by experts focused on meeting these service standards and delivering a good outcome for your customers.

Specialist financed equipment insurance will be geared towards supporting your customers, keeping them informed every step of the way and guaranteeing fast repair or replacement of equipment for every legitimate claim.

Your selected insurance servicer should be able to prove they are dedicated to ensuring your customers are happy and should agree strict service levels with you that they report on frequently. As insurance and claims experts, they should be able to demonstrate a strong track record in customer satisfaction and a low customer complaints ratio. Better still, seek an insurance servicer who is willing to enter a partnership relationship with you so the commercial arrangements reflect a commitment from them that should insurance penetration drop, their income will also be affected.

When both lessor and insurer are financially incentivized in this way the relationship is built on mutual success of the program, ensuring service standards and highest quality insurance is invested in and maintained.

Often, when these insurance agreements come up for renewal, the temptation is to believe that risks are mitigated through having a protection program in place. But is your program working as hard as it could be? Are these wider reputational and customer risks being looked after? Is your provider investing in these processes and making sure that everything, from the point of sale through to the claims process is seamless? Ultimately outsourcing anything to a third party is a risk, but ensuring you are working with the right provider, who cares about your business objectives as much as your own, will minimize this risk and even add value.