Rental and staging is a business fraught with risk, but well-informed executives know how to protect their companies from financial disaster.
Art Seifert of Lighthouse Underwriters.
Any good business owner appreciates the importance of having adequate insurance protection from lawsuits, property damage, and theft. Managing these risks is never easy, particularly for rental and staging companies that face challenges unique from those of other industries. How, then, do industry executives go about developing comprehensive strategies for managing those risks?
A man with answers to many of these questions is Art Seifert, president and CEO of Annandale, Va.-based Lighthouse Underwriters. Working in partnership with the International Communications Industries Association (ICIA) since 1994, Lighthouse Underwriters specializes in developing insurance programs that are custom-tailored to meeting the unique risks faced by rental and staging businesses. At InfoComm 2002, Seifert shared some of his thoughts about insurance, and about risk management strategies in general, in a seminar session entitled “Risk Management for Rental and Staging Businesses.”
The seminar attracted a near-capacity crowd, and the questions raised by attendees made it clear that this is a business management area of prime importance to their companies.
In the following interview with SRO, Seifert elaborated on some of his insights about risk management.
SRO: What are some of the things that differentiate the insurance needs of rental and staging companies from those of other businesses?
Seifert: The single biggest difference is that their most valuable assets, aside from their employees, move from place-to-place on a regular basis — their equipment. And this equipment is also put in the hands of users who are not employees of the company itself. So you've got high-valued equipment that has the risk of transportation and installation, and also the risk of being in the hands of a third party. That single characteristic makes rental and staging unique when compared to a lot of other businesses.
SRO: So most of the policies you sell are focused on protecting equipment from damage or theft?
Seifert: Yes, although it's a full package. Our programs include a lot of the same coverages you'd see whether you were insuring a rental and staging contractor or whether you were insuring some other type of company. Certain coverages, like automobile, general liability, and umbrella, are going to run similarly across a wide class of businesses. But where we've focused and where we've created unique policy language is in the area of protecting equipment.
SRO: Give an example of this kind of unique coverage.
Seifert: We've designed a form that essentially follows a company's equipment wherever it goes. It even picks up sub-rentals. So, for example, if I'm a staging company and I need a certain number of cubes to create a mobile wall, but I personally only have half the number of cubes I need in my inventory, then I'm going to sub-rent the rest from somebody else. In the past, there was no way of insuring that sub-rental. So we've created a way of doing that.
Another thing other forms didn't do was recognize the potential for lost income if equipment was damaged or destroyed. In other words, if you've got a hundred thousand dollars worth of equipment on its way to a show, and there is a car accident and the equipment is all burned up — and we've actually had this happen — then that staging or rental contractor has to go out and do whatever he has to do to find equipment to populate that contract. There is an additional cost involved in doing that. You've got to rent the equipment yourself. Our policy picks up that additional cost incurred to stay in business and meet your contractual obligations.
SRO: As far as equipment damage issues go, what are some of the most common scenarios you see occurring in this industry?
Seifert: Probably the most common thing is that people don't understand that if they are shipping equipment that they have packed themselves, if it arrives at the site damaged, it's their responsibility, not the shipper's. The only way a shipper assumes full responsibility for the equipment is if they've actually done the packing themselves. We get a lot of stuff that's damaged en route, where we have to pay the claim because our insurer packed the equipment initially.
The second most common problem is theft. That's a huge problem, and the claims related to that can span a wide range. We once had a claim for $280,000 or so from a company that had equipment going down to a shoot in New Mexico. When they got there, they set up, parked their trailers, locked them up, and then went to a hotel. When they came back the next morning, the trailers were gone — driven over the border. We've also had people break into a warehouse and clean the entire warehouse out. On the other hand, we also see lots of little claims, where cameras or PCs or something like that turn up missing. So theft is one of the other big areas we focus on.
SRO: Are most people who come to you pretty knowledgeable about the kind of insurance they need?
Seifert: Well, keep in mind that the people who are coming to us are the insurance agents, not the insurance buyer himself. But we do see a wide range of expertise. For example, United Agencies out in California really knows the business. One of the reasons they like dealing with us is that they know we know the business, and they know we offer a form that provides the broadest set of coverage anywhere in the marketplace. But we also run into people like, say, an agent in Boise, Idaho, who has one account and doesn't really know the business and where to place the insurance for the account. And he'll find us through our website or some other advertising that we do. Such an agent will send us an application and we'll basically hold his hand and explain to him why the package of coverages we've created are in the best interest of his or her client.
SRO: Are there some misconceptions that rental and staging people have regarding insurance?
Seifert: Yes. A lot of staging and rental contractors assume that sub-rentals are covered when they're not. They'll assume there's coverage for loss of business income on their equipment when there isn't. And we also have something called trick-and-deceit coverage that covers certain fraud scenarios that aren't normally covered. For example, if somebody sets out to defraud you of a piece of equipment by representing themselves as somebody that they are not, or by using a stolen credit card that isn't detected before the transaction has taken place. A lot of rental and staging companies don't realize that those type of losses aren't normally covered either.
SRO: Would you say that most rental and staging companies are adequately insured?
Seifert: No, there are a lot of firms that are underinsured. In terms of numbers, most agents who write one or two of these policies don't really know what they need. So what they've typically done in the past is sell their clients an off-the-shelf kind of product, because most insurance carriers don't have something designed specifically for this class of business. And it'll be 75% adequate for that particular client.
SRO: In the risk management session you conducted at InfoComm, you made the point that managing risk is not just about buying insurance policies.
Seifert: That's right. In terms of risk management, insurance is only one option. It's really just a part of a risk transfer strategy. Risk transfer can happen in a number of ways. It can happen contractually, as well as through insurance.
SRO: You also said that some venues will actually try and make rental and staging companies take on more liability than they should through one-sided contracts?
Seifert: Yes. In fact, there was an instance where the ICIA itself had a claim in Los Angeles a few years ago that illustrated that problem. Typically, when you take over a venue, especially when there is a municipality involved, the municipality is going to ask you to hold them harmless. In this particular case with the ICIA, there was a worker who was basically a walk-on laborer for one of the big exhibit contractors that set up the trade shows. He stepped in a pothole in a municipal parking lot and wrenched his knee pretty bad. The initial claim was brought against the City of Los Angeles because they are responsible for the conditions of those parking lots. But because ICIA had signed a hold-harmless agreement for all that square footage, the claim, which was initially paid as a worker's comp claim by the insurance company for the City of Los Angeles, was eventually subrogated against ICIA's general liability insurance. That happened because the contract ICIA signed was too broad.
SRO: What can companies do to prevent that?
Seifert: Well, it's not unusual for a venue to have a hold-harmless agreement in their contract, but what you can do is ask for a bilateral hold-harmless agreement. That basically says that I'll hold you harmless for loss or damage caused by my negligence, and you'll hold me harmless for loss or damage caused by your negligence. Unfortunately, it's the kind of thing that people won't think to ask about.
SRO: Can you also further discuss fleet exposure management?
Seifert: There are an awful lot of rental and staging companies that have a significant fleet of vehicles. There are certain things you can do from a design standpoint to make your fleet better able to protect your equipment, and there are things you can do to better maintain the operability of the vehicles themselves. For example, there's one company I know that has designed the interior of their fleet to hold the equipment in place even if the vehicle has to swerve or come to a sudden stop. Beyond that, there are the basic fleet management things that have to do with providing regular care for your vehicles and maintaining accurate records of that care. You should also check [motor vehicle records] of your drivers, so you know the people operating the vehicles are qualified.
SRO: Since many rental and staging companies work on high-profile events, what can be done about the issue of terrorism?
Seifert: That's a topic a lot of the large staging and rental companies are very interested in, but it's not something that's available to the industry yet, because there is a pretty big exposure there. It's just not available at any reasonable cost right now.
SRO: So in summary, what would be your best advice about what rental and staging companies can do to better manage risk?
Seifert: The number one priority has to be how they care for and protect their equipment. When you rent a piece of equipment out, is there a waiting period? Do you run a credit card at that time? Do you do a credit check? Is there some kind of a background check you perform, especially on people with large rental orders?
Priority number two is to do a proper inventory of your equipment. Do you have code bars on your equipment, enabling you to use a scanner to keep a constant inventory on your equipment, so you'll know if something is missing or not?
Finally, when you use insurance as part of your overall risk management program, you need to be sure that you buy an insurance policy that's going to provide coverage for equipment when it's away from the premises, coverage for equipment that's placed into the hands of a third-party, and extra-expense and business-interruption coverage for any equipment that is lost, damaged, or stolen.
SRO: Any anecdotal horror stories you would care to share about what can happen to inadequately insured companies?
Seifert: Here's an example of what could have been a horror story. We once picked up an insurer for whom we provided ‘trick and deceit’ coverage for the first time. They hadn't had it before.
And shortly after getting our coverage, they had someone come in to make a rental using a credit card. They ran the card through, but it turned out to be a ring of professionally established criminals, who were ripping off rental contractors across the nation. They had this fairly well-conceived facade developed where everything looked like it should look, but it turned out that, two weeks later, they still hadn't heard from the guy, and the equipment was never returned. Because they had switched their coverage to us, they were covered for that, but otherwise, they would have been facing an $85,000 loss and no coverage.
Stephen Porter, a freelance writer based in Derry, N.H., has been writing about video and computer graphics technologies and applications for more than 15 years. He can be reached at firstname.lastname@example.org.