Insuring Permanently Attached Equipment

Written by Eric Petersen, CIC

It’s no secret, the vehicles that tree services are utilizing today are becoming more specialized and more important to the overall success of the company. Almost every vehicle that a tree service operates has some form of permanently attached equipment now. Whether that is the traditional forestry unit or a knuckleboom crane, the value of that truck with the attached equipment is obviously much different than what it was when the cab and chassis was rolled off the assembly line. Because of this, you should know what options you have on how that truck can be insured.   

To begin with, your standard Business Auto insurance policy is designed to pay Actual Cash Value (ACV) for Comprehensive and Collision coverage on your insured vehicles. This means the insurance company will calculate what the current value of the vehicle is at the time of the loss. They will look at comparable vehicles with similar equipment, take into consideration mileage and general wear and tear to determine the amount they will pay for the claim. 

That might be a fine way to insure the majority of your fleet, however, for a very unique or important truck, you may want to consider using your Inland Marine policy to insure some or all of the truck on Replacement Cost (RC). 

There is a new trend in the insurance industry where insurance companies are allowing tree services to separate out the coverage on a truck with permanently attached equipment between your Inland Marine policy and your Business Auto policy. Each insurance company will have different rules on this, but the most common approach is that the insurance company will insure the cab and chassis on the Business Auto policy for ACV and let you place the permanently attached equipment on the Inland Marine policy with a RC limit. 

With Replacement Cost, you will get the amount needed to replace the permanently attached equipment with a brand new attachment of like kind and quality, subject to the limit of insurance or Catastrophe limit of your Inland Marine policy. When thinking about the value of a knuckleboom crane attachment this can be a huge difference on your claim payout versus only getting Actual Cash Value. 

Other things to consider with splitting out coverage between the Business Auto and Inland Marine policies are the fact that you will have two claims and two deductibles for that one truck. You also may have two different claims adjusters to work with. Depending on the insurance company, many times you can only get RC on items that are five model years and newer, which can limit the number of items in your fleet that will qualify. Lastly, because the RC will be a higher value, insuring the permanently attached equipment on the Inland Marine policy for RC, the premium cost will likely be quite a bit higher. 

And while we are discussing very unique and important vehicles for your business, I’d like to remind you that you can purchase Business Income for those vehicles as well. We wrote a separate article on that topic that you can find here.

Because of the nuances and options of insuring vehicles within your fleet, it is important to work with your insurance agent to understand how your insurance company will handle the situation. While, it definitely takes more detailed effort and attention, to properly breakout the permanently attached equipment onto your Inland Marine policy, it has the benefit to truly help your company survive a bad accident with your prized vehicle.

Cost New – Business Auto Insurance

Written by Eric Petersen, CIC

A common question we get asked is what does the “Cost New” value mean on my Business Auto policy?

If you look on your Business Auto insurance declaration page you will see a dollar value listed for each of your trucks and trailers under the heading of “Cost New”.

This number is an important underwriting guide for the insurance company from an insurance pricing and claims standpoint. It does not set the limit of coverage for the vehicle but can cause problems with a claim and on your renewal if the amounts are drastically off. I’ll explain more on this at the end of the article.

First, let’s discuss what Cost New is and how it is calculated. 

The Cost New value should reflect the amount that truck cost when it first was manufactured.

This value is initially filled in by the insurance company with information they have on the vehicle according to the Vehicle Identification Number (VIN). It applies to only what would have been included from the manufacturer and does not account for any aftermarket parts or permanently attached items.

Many of the trucks and trailers that tree care companies own and operate have aftermarket parts/equipment added that dramatically changes the value of the truck. Think about the traditional forestry unit where a dump body and aerial lift or knuckleboom crane attachment are added onto a bare cab and chassis. That completely changes the value of the truck and it is so important to ensure that your Cost New values on your policy reflect the total value of the truck and attachments when it was first manufactured.

For example, (please note I’m making these numbers up!) let’s take a 2018 International 4700 with a forestry package (dump body and aerial lift) on it. The VIN of the truck will pull the Cost New of the cab and chassis. For this example we’ll say that number is $90,000, but the truck didn’t come off of the International assembly line with the dump body and aerial lift. Those parts were added afterwards. For the dump body and aerial lift components, we’ll assume they were $70,000 together. The value that should be listed on your insurance policy for Cost New will be $160,000. It doesn’t matter if you got a good deal for this unit in 2020 and only paid $100,000 for it as the Cost New is going to reflect the cost at the time it was manufactured and has nothing to do with what you paid for it. 

So how does Cost New affect the price you pay for insurance on the unit and will it affect how a claim is resolved?

The premium for physical damage coverage (Comprehensive and Collision) that the insurance company charges factors in the Cost New. So a higher Cost New will produce a higher premium and vice versa. That said, many tree care owners try to lower the Cost New to lower their premium. However, when a claim is filed for a vehicle the claims adjuster will look at the insurance policy to see the Cost New and any description of permanently attached equipment, in addition to the mileage and overall physical condition of the vehicle as well as finding the value of comparable vehicles to help determine what the appropriate value of that vehicle is. Having the most accurate Cost New, will help the claims adjuster give you the best value for the vehicle. To reiterate, the Cost New is not the coverage limit placed on the vehicle, but rather a factor that the claims adjuster will use to determine the amount they will pay for your vehicle. 

Lastly, we have seen insurance companies want to non-renew business auto policies with intentionally undervalued Cost New amounts. The insurance companies need to collect adequate premium for the exposure that they are insuring so they can be financially strong enough to pay the claims that they have promised to their policyholders. Since the Cost New plays a role in determining the price of your policy, the insurance company will want a reasonable value listed. 

To avoid any issues with claims or the renewal of your business auto policy, we always recommend to go through your vehicle list with your agent and ensure that not only are the vehicles listed correctly, but that they have proper descriptions of any permanently attached equipment and the Cost New accurately reflects a realistic amount.

What to Expect from Your Business Insurance Agent and Agency

Written by Eric Petersen, CIC

Many times we hear tree services refer to their business insurance as a “necessary evil”. And while there may be some truth to that, the tree care companies that actively engage with their insurance agent quickly realize that having the right insurance partner is actually a “necessity” for the future success of their company.

I’ve often advocated for tree care companies to think of their insurance agent as a member of their company’s board of directors. A person who is an integral member of their team to help steer their company in the proper direction, much like their accountant, business attorney or financial planner.

Understanding that your insurance agent is a key member of your business team, I want to also make sure to highlight the difference between the types of insurance agents as well as the distinction between the agent and the agency. There are two different types of insurance agents that tree services can purchase coverage through. Captive Agents will typically represent only one insurance company (think State Farm, Allstate, American Family). Independent Agents who represent more than one insurance company. There are benefits to both types of agents, however, the vast majority of tree care companies will use an Independent Agent as they will have many more options available to secure the best insurance program for their clients.

Side note: ArboRisk’s roots came from the Captive Agent side (back in 2000, my father made the decision to switch from being a Captive Agent with Allstate to being an Independent Agent), so we have had experience in both areas and are very proud to be able to provide the value as Independent Agents to the tree care industry.

It is also important to understand the role of the agent and the agency. Every insurance agent will either be an employee or contractor of an insurance agency. Therefore, the insurance agency is the entity who is responsible for obtaining the insurance company relationships and developing resources for the agents to utilize with their clients. Most insurance agencies rely on their insurance companies to provide specific risk management help for their clients instead of developing services internally. 

With all of that said, what should a tree service expect from their insurance partner? There are five areas of knowledge that your insurance agent and agency should excel at and make no mistake about it, number 3 is the most important!

1. Insurance – First and foremost, your insurance agent needs to have a great understanding of the insurance coverages important to the tree care industry. This knowledge enables them to be more than just a salesperson and allows them to serve your company as a true trusted advisor to guide you through decisions.

2. Claims – Your agent should have a good understanding of the claims process as well as the most common type of claims within the tree care industry. They are your advocate during the claim process to guide you through the challenging time to ensure you get a prompt and fair resolution from the insurance company.

3. Risk Management – This is the most important one! The amount of premium you pay for your insurance coverage is directly related to the number and severity of your past insurance claims. In order to help you control your insurance cost in the long run and help you build a profitable business today, your agent MUST bring a risk management focus to your insurance program to help you do everything you can to eliminate or reduce injuries and accidents. They should have resources and a proven process established for you to implement easily and effectively.

4. Tree Care Industry – The more your agent knows about the tree care industry, the better they will be able to serve your company. Your agent should understand the unique service operations and equipment that tree services across the country use in order to build an effective risk management focused insurance program. You shouldn’t have to teach your agent about the tree care industry every time you call to add a piece of equipment or need an insurance certificate. Bonus Points go to the agents that are actually involved in the tree care industry, volunteering with associations, presenting at conferences and sponsoring events.

5. General Business – Lastly, your insurance agent should have some degree of general business knowledge. They should understand the basics of running a business and how you, as the business owner, get pulled in a million directions daily. This understanding of business acumen will help your agent craft the best risk management based insurance solutions for your organization that will minimize downtime and disruption caused by injuries and accidents.

Unfortunately, not all insurance agents and agencies will be proficient in the five areas of knowledge above and you will have to make a switch to better your company. If you are looking to switch, here are a few simple points to help you transition from your current agent seamlessly.

– Communicate Clearly – Once you’ve made the decision to switch, communicate your intentions clearly and directly to your current agent or agency. Expect them to try to win you back with promises of better service or by offering additional resources or by tugging at your heart strings by using a personal story of why they need to keep you as a client or example of a past situation they’ve helped you with.

– Three Reasons – Be ready to explain your reasoning by using the points above to create at least three reasons why you need to make this change for the betterment of your business.

– Prepare for Objections – For every reason that you have to move your insurance program to a new agency, your current insurance agent will have an objection ready to respond with. Prepare in advance by thinking through what they will say and how you can handle their response. As mentioned above, prepare for them to get personal with you in their attempts to retain your business. This can be uncomfortable for some, but will highlight how some agents will try to put their own needs above your company’s needs.

–          Remember Why You Need to Change – This has already been stated above, but it is so important that it needs to be stated again. Never let your current agent distract you with their attempt to keep you as a client when they have been letting you and your business down in the important areas that you need your insurance partner to be proficient in.

Insurance coverages alone can be a tricky subject to deal with as a business owner, so now you know how the right insurance agent and agency can help eliminate this as a potential threat to your business.