Great companies are always trying to increase the value they deliver to their clients. For machinery brokers, this might include offering machinery repair or service work to your client’s machinery. While this is a great value add to your client, you should consider the impact this has on your organization’s insurance premiums.
First, whenever you are performing repair or service work to piece of machinery, you are altering it from the way it was originally manufactured. This increases your Products Liability exposure and thus changes the way insurance carriers will treat your company.
Second, when you are altering a machine through repair or servicing work, it limits the number of insurance carriers who are willing to offer coverage terms to your business. For example, if we are working with strictly a broker of machinery, there might be a pool of 5-8 carriers we can leverage in order to receive the best pricing and coverage terms. For machinery brokers who also offer repair or service work in house, there may be only 2-3 carriers who will consider offering terms. As the number of insurance carriers with an appetite for your class of business decreases, you can expect premiums to increase. It’s also important to note that these carriers will most likely be in the excess and surplus insurance marketplace (non-preferred pricing & non-standard coverage terms).
Third, these repair operations typically have a higher exposure to risk. This leads to multiple issues, including:
So is there a solution?
Yes! The point of this article is not to discourage offering these services to your clients, but rather to educate readers on the implications that these operations have with regards to your insurance program.
From an insurance perspective, one solution is to hire a subcontractor for these operations. Depending on the size of your operations and a breakdown of your revenue streams, it might be more cost effective to separate this out instead of performing the work in house. If you decide to allocate these operations to a third party, make sure that the subcontractor carries his or her own General Liability (including Products Liability) and Workers Compensation coverage.
Another option would be to create a separate entity to break this exposure from the rest of your business. Again, this would depend on many different factors specific to your business. However, by creating a separate entity, you are now creating two buckets of risk that are independent from each other. This allows us to leverage the best insurance carriers for each specific operation.
J.Krug & Associates