Win-Win SolutionsBy Joanne Costin
Article Date: 10-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.
Everybody wins with EPG’s protection against unfortunate events.
Selling and renting construction equipment is your primary focus, but protection against unfortunate events is an add-on that equipment buyers are often willing – or perhaps required – to purchase. Equipment buyers and their bankers know the cost will be high if a machine goes down or is stolen, and they often need or want to be protected. EPG is an insurance provider that wants dealers to take advantage of this opportunity; their focus is on making it as easy as possible for the dealer and as beneficial as possible for your customer.
Dealer focus is what sets EPG Insurance apart. They have partnered with dealers since 1987 and are long-time members of AED. With their extensive knowledge of the industry, they have continually evolved to provide new solutions that are a win-win for everyone involved.
When EPG Insurance was formed, they began by providing coverage to John Deere dealers in Tennessee, Mississippi and Arkansas. Within a short time they were serving a large Dealer 20 Group and had expanded from forestry equipment to construction equipment. In addition, they now serve the agriculture and trucking markets as well.
“We saw the little niche in the market and we felt like we could provide a better product [physical damage and extended warranty coverage] and make the manufacturer and the distributor happier than if the manufacturer was required to provide the product themselves,” said EPG Chairman Charlie Glass.
Extended Service Coverage and Perceived Value
Glass believes there is an inherent conflict when a manufacturer provides the extended warranty.
“When the manufacturer provides extended warranty, there usually is a conflict between the distributor and the manufacturer,” Glass observed. “The distributor says ‘this is covered’ and the manufacturer says ‘no it’s not.’ In our opinion, the determination of that is best delegated to a third party.”
Sometimes the extended warranty coverage insurance is branded under a private label, while in other cases it carries the EPG name. Either way, EPG takes on the risk, leaving the manufacturer or distributor to do what they do best, focusing on equipment sales and service.
Glass’s view of extended warranty coverage goes far beyond its value in protecting the buyer against a mechanical breakdown outside of the manufacturer’s base warranty period. Instead, he views it as a selling tool; as a way for dealers to increase market share as they raise the perceived value of their equipment.
“Extended warranty really gives a perception of value,” said Glass. “I am convinced the reason why CAT is the market leader is because they have always sold extended warranty. What better way to stand behind the quality of your equipment?”
One area that has changed significantly over the past few years is extended warranty coverage for used machines. While extended coverage on used machines has been offered for more than 20 years, EPG has significantly broadened its coverage, partly in response to market needs and conditions. Now in most cases, EPG will no longer require an oil sample, and dealers are able to offer six- to 24-month terms, and up to 2,000 additional hours. Oil samples have traditionally been a hassle for dealers because of the time needed to take the sample, send it to the lab and have it returned.
“The reason why we have been so aggressive is because you have so many machines that are three or four years old,” said Glass. “They have 1,400 to 1,800 hours, whereas in the past they would have 3,000 or 4,000 hours on them. We will look at machines with a lot more hours than we have in the past, we will go further out in age, and we have, in most instances, waived oil samples.”
Glass believes that in today’s market, extended warranty coverage on used machines both facilitates the sale and also provides a higher margin to the distributorship.
He advocates that a longer warranty period keeps a contractor from coming back to complain as they might after a 30- or 60-day “dealer” warranty. And if there is a problem with the machine, instead of eating the costs, the dealer is reimbursed for the full retail cost of parts and labor.
Loss Damage Waiver Protects Dealers and End-Users
In a typical rental situation, the dealer requires the customer to provide proof of insurance before taking possession of a piece of equipment. The situation is fraught with hassles for dealers. Customers don’t always have the right documents and they often don’t have the right coverage. EPG designed its loss damage waiver to eliminate these problems. Instead of requiring proof of coverage, you can offer your customers a loss damage waiver. It simply says that you waive the customer’s insurance requirement and that you are providing coverage for the rental period.
Dale Vaughn, president and CEO of Oklahoma City,-based OCT Equipment, utilizes EPG’s loss damage waiver insurance and has been happy with the arrangement.
“It is seamless,” said Vaughn, whose customers often find it more convenient to buy the insurance on a short-term rental. “They [EPG] are very accommodating and they understand the dealer.”
The loss damage waiver protects both dealer and renter in the case of an accident. For example, if the rented machine rolls over and causes $10,000 worth of damage, and the renter is only covered up to $5,000, the dealer would need to submit the balance of the claim to his insurance. Both renter and dealer could face higher premiums on their corporate policies as a result.
If the same scenario occurred with a loss damage waiver from EPG, the claim is submitted to EPG, and neither the dealer nor customer corporate policy is affected.
“We don’t necessarily penalize the dealership for that loss,” said Glass, “because he is pooled in with everybody else. If the distributorship has the same loss and turns it in on the corporate package, it counts against all his insurance, his workers compensation, his property insurance, his equipment insurance.”
Keeping the corporate insurance policy “clean” can mean big savings to a dealer. Glass estimates that submitting a theft claim on a corporate policy might result in a 20 or 30 percent rate increase for two or three years. If the entire insurance costs for your dealership is $80,000, that works out to a penalty of about $16,000 per year, or $48,000 over three years.
“Depending on the market, a distributorship can charge 14-20 percent for a loss damage waiver. And we only require a percentage of that to cover the real risk,” said Glass. “You pay only for what you use.”
Glass estimates that loss damage policies can be sold on about 25 percent of rental transactions, and in order to maximize that opportunity, EPG developed a service called TrackCert.
TrackCert Uncovers the Exposures
TrackCert helps dealers identify those customers who need a loss damage waiver. “We have done survey after survey and we know at least 40 percent of the time there is a problem with the certificate on file that would mean the customer does not have coverage,” said Glass. It could be that the policy limits are too low, the coverage period has expired, or that the policy does not include rental exposures.
With TrackCert, all certificates of insurance on file are reviewed by EPG to determine the adequacy of the coverage. The results are then posted on a password-protected website that your rental counter people can easily access. For new customers, a fax is sent to EPG and within 15 minutes the dealer has an answer as to the adequacy of the rental coverage. The system also identifies customers whose insurance contracts are expiring, so that the system is always up to date.
Costs for the service are priced based on a subjective rating system that takes into account the number of active customers and fleet size of the customers. “We also score the percentage of correct insurance certificates that are on file and how much work we need to do to get corrected certificates,” said Glass. Continuous updating is included in the price.
Both the dealer and customer eliminate an exposure to risk, and customers are not inconvenienced with locating their insurance certificate for each rental. With the insurance question out of the way, your rental counter people are free to focus on delivering service.
Physical Damage Insurance
Physical damage insurance protects your customer’s equipment investment if there is a loss due to collision, earthquake, fire, flood, hail, overturns, theft, tornado, vandalism or wind. One of the key advantages of purchasing physical damage insurance along with the finance contract is that the rates will never increase during the contract period. Customers can lock in their costs, while dealers add another revenue stream. Again, if there is a claim, it won’t affect the corporate policy. Most customers match the length of the coverage to the finance contract. In these lean times, buyers want to know their costs, and using the physical damage coverage lessens the worry brought on by rising insurance rates.
“Most of our customers are familiar with EPG and the fact that they have the best package in the industry,” said Earl Terry, vice president and CFO, Tidewater Equipment, with 11 locations throughout Southeast. Specializing in logging equipment, Tidewater has used EPG for physical damage insurance since the late ‘80s.
“We want to deal with a reputable company so that if there were to be a loss, we want to make sure the customer has coverage and gets paid in a timely basis,” said Terry. “We know that when we direct the customer their way, they will take care of the customer. They will stand behind their product and it will facilitate us down the road when the customer has to replace the machine that was lost.”
For dealers in today’s competitive marketplace, it’s important to think about every possible tool you can employ to gain an advantage. Insurance can be part of your winning solution. Every EPG product offers an opportunity for dealers. As much as we like to think that events such as theft, mechanical breakdowns, and accidents won’t happen to us, they do in fact happen. Fortunately, EPG is ready with some dealer-friendly solutions to protect both you and your customers from unfortunate events.
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