Failing to insure tools is a costly mistake for service providers.
Independent service providers and mechanics from across the country have, at one time or another, struggled through the aggravation of playing the insurance game. Many shop owners try and deal with insurance needs as quickly as possible, lest they be reminded before too long about the very real money that is being spent on the very abstract. This attitude causes a great deal of complacency throughout the industry, as shop owners simply pay what they are told, and few bother to invest in real and viable options that can help cut those monthly insurance costs.
Good insurance is not ensured
Imagine you drive into work one morning to find you’ve lost half of your shop to fire, and the other half to theft. It’s an absolute nightmare, but not the end of the world. You think to yourself, “Unfortunate, yes, but I’ve got insurance, so I’ll be ok.”
Well, maybe not. Many experts confirm the insurance game has been irreversibly altered.
Tony Auchincloss ran head first into this change while living in the San Francisco Bay area, when his tools were stolen from his truck.
“After 9/11, all of the insurance companies started asking for solid, concrete proof,” Auchincloss said. “How many mechanics have the receipt for every tool in their box, or how many owners have proof of purchase for every one of their shop’s tools?”
As a result of his experience, Tony began his company, Tool Inventory & Appraisal System Inc. (TAIS) which catalogues tools for shop owners across Canada. So, even if a shop owner or technician has lost their receipts or the receipts were destroyed in a fire, Auchincloss’ service will restore proof of ownership.
Along with Auchincloss, some traditional insurance companies are starting to get into the tool trade, albeit cautiously.
Enzo Ferrari, vice-president of Business Insurance with Toronto-based Creighton & Company, said his firm was proud to be a pioneer in the business of tool insurance, after the industry took something of a hiatus.
“There haven’t really been any options for mechanics insuring their tools for a while,” said Ferrari. “Most companies are very hesitant, because some firms tried it a while ago, and they really lost their shirts.”
According to Ferrari, the industry has begun to learn from its past errors, and has certainly begun to adapt their standard insurance package and methodology, to more appropriately fit the auto service genre.
With that said, the tool trade still has some mountains to climb.
Tools are tough on insurance
One specific problem outlined by Auchincloss was the big insurance companies simply don’t want to get involved with the tool side of the service business. Admittedly, tools and in particular the personal tools of technicians, are exceptionally difficult to insure for a number of reasons. Transportability, inter-changeability and ease of theft are just a few.
Auchincloss certainly understands the concern of the insurance industry.
“The problems of internal theft and insurance fraud are always going to be there, but the people using my system aren’t doing it to facilitate fraud, but rather protect themselves.”
In fact, when Auchincloss finishes auditing the personal tools of an individual mechanic, he insists that mechanic sign an affidavit, declaring that all of the tools examined for insurance purposes were in fact theirs.
“It’s a way to guard against that kind of fraud,” said Auchincloss.
With the not so positive relationship between past tool insurance efforts reasonably understood, Ferrari went on to talk about exactly why the tool business is a tricky one for insurers.
“Most guys are carrying some $30,000 in tools. So while that’s a lot of money, the premiums are very small,” he said.
In fact, most mechanics with that appraisal value of tools would, under Ferrari’s particular insurance plan, spend in the neighbourhood of $375 annually, or just $32 a month.
In response to past failures, the programs being developed now, have restrictive, but apparently vital clauses, which all try and cut-down on fraudulent claims. According to Ferrari, a mechanic’s tools are only insured while they are in the shop. As a result, mechanics who want to keep their tools under the protection of the policy, might have to forgo keeping the tools in their car or at home in order to ensure their maximum coverage.
Former incarnations of tool insurance also had policies that could be taken out by individual shop owners on behalf of their mechanics. Unfortunately, according to Ferrari, this system is more rare, given the reality of the industry.
“First, mechanics these days don’t often stay with one garage with their tools for twenty years; they change garages a lot,” he said. “Secondly, if there was a claim on the policy from personal tools that were stolen, it wasn’t the mechanic whose rates were affected, because it wasn’t their policy. It was the shop owners.”
As a result, Ferrari said he and his company work with Auchinclaus, in order to provide specific insurance packages to individual mechanics as an entity separate from their place of work.
With that said, there are some shops, like Mark Erskine’s Erskine Service Limited in Orangeville, Ont., that provide a base insurance for their mechanics. “We have a policy in place that takes into account all of the tools in the shop.” he said. “But, I still tell my technicians that this is a basic coverage, and that if they want separate insurance, that’s the way to go, because even tool-boxes are getting pretty costly these days.”
Knowing what your tools are worth, getting the right coverage
“I often play this game with guys when I first get there,” Auchincloss said. “I say, ‘How much do you think your tools are worth?’ I think there has been one guy who was even close.”
As it turns out, according to Auchincloss, the vast majority of owners believe their tools are worth far more than they actually are. As a result, their insurance quote is for a great deal more than it ought to be. More often than not, the discrepancy is in the hundreds of thousands of dollars.
While over insurance is something Auchincloss sees more often in terms of his day-to-day work with shop owners, Ferrari said the exact opposite is true for many mechanics. “The biggest issue we have is mechanics just don’t want to have the added expense,” he said. “But it’s their livelihood. They insure their car; they insure their homes. I just can’t imagine not insuring the tools.”
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