When it comes to protecting your leased equipment portfolio, there are a number of options available to lessors. Julien Gautier, Head of Sales at Acquis, takes a look at the options and discusses how best to achieve clarity and confidence.
Any loss or damage to leased equipment can cause immediate detriment to a customer’s business; a flood that wipes out medical equipment, the theft of a sales person’s mobile phone, or a cash register rendered useless by a power surge will quickly grind business to a halt. When business continuity is threatened, so are the payments on a lease agreement. After all, who really wants to continue to pay for equipment that’s been rendered useless?
When choosing how to protect leased assets, there are a number of options available to lessors.
- Let the lessee take care of it
In most asset finance agreements, responsibility for insuring leased equipment falls to the lessee to take care of it. But in reality, customers can be unclear as to whether the equipment is adequately covered by their business policy. In the unfortunate event that equipment is damaged or lost and a customer needs to make a claim, they may find that the leased equipment is not insured at all, or, if it is, they have a large excess to pay on their business insurance policy that renders the claim unviable. Even when a customer is able to claim successfully on a business insurance policy, they are likely to be subjected to increased premiums at renewal. The pitfalls of this model can lead to high levels of underinsurance; as high as 80% of asset portfolios lack adequate insurance. And for lessors, this model can mean no clear idea of the real extent of underinsurance.
- Sell your customers equipment protection insurance
Selling specialist insurance to your business customers directly at the point of sale is one way of counteracting this issue and protecting your asset portfolio. However, selling insurance brings with it the heavy regulatory and administrative burden of complying with the EU’s Insurance Distribution Directive (IDD) which covers all insurance mediation. Penetration levels can languish below industry averages for business insurance, and where customers choose not to purchase insurance, there remains a lack of clarity over whether the asset is adequately insured.
- Protect the asset yourself and outsource the management to a specialist
An alternative approach is to protect any uninsured equipment under a lessor’s own master policy, and because the lessor is the policy holder this model requires no intermediation which leads to much simpler regulation. Under such an arrangement, each financed asset is individually covered for its full replacement value, removing the risk of underinsurance. Insuring leased assets yourself allows you to take control of the quality of the insurance product and select a premium policy that offers no excess, few exclusions, and comprehensive cover, which will mean you’re best positioned to get your customer’s business back up and running as quickly as possible.
For this model to work effectively, it is necessary to regularly follow up with each customer directly to establish the level of insurance on the leased equipment, as well as monitoring for any lapses or cancellations during the period of the agreement. This can bring an unwelcome administrative burden, but choosing to outsource the portfolio tracking to a specialist will free your teams to concentrate on what they do best: arranging the lease agreements. This gives lessors a thorough insight into the level that an asset portfolio is protected, and because the cost is covered by an administration charge added to the lease agreement, it can provide a valuable secondary income stream.
When it comes to choosing an equipment insurance model for your leasing business, it’s important to find the right balance between maximising return from lease portfolios, protecting your assets and minimising disruption to your lessee’s business. Acquis are seeing a growth in leasing companies seeking to employ an outsourced service which relieves the regulatory and administrative burden, employs the highest quality insurance, and ensures assets are protected from day one. And there’s good evidence to show that lease customers prefer the convenience of the lessor taking care of it; working with our leasing partners we are achieving 50 – 80% penetration depending on asset class and region. When the programme runs at no additional cost and generates income, it could well be a far better option than sending your assets off well packaged in bubble wrap and hoping for the best.