Damage waiver: an oft-misunderstood but vital component of the equipment rental industry. This blog post will serve to define damage waivers, explain how they work, what to expect in terms of coverage, and how to provide a damage waiver to rental customers in a way that will improve profitability for a rental business and add value for renters.
Called by many different names (loss damage waiver, fire theft vandalism, etc.) with varying degrees of value, but with a common objective. Renters are responsible for any losses or damage to equipment while it is out on rent. A loss damage waiver (LDW) serves to limit the financial responsibility of the renter to repair damage to rented equipment. This protection is provided in exchange for a fee usually listed as a line item on a rental bill.
A damage waiver is not insurance to the renter, it is a waiver of responsibility for the customer to pay for damages to the rented equipment. Damage waivers reduce any exposure to a renter’s business insurance policy and eliminate the renter’s need to provide proof of physical damage insurance before renting equipment. Damage waivers may be insurance-backed or may be self-funded by the dealer. Damage waivers may help to simplify the rental process and the claims process.
The truth is, it depends.
Some damage waivers are named perils only, which means the only losses that are covered are the ones specifically listed in the fine print. It is common for these named perils to be limited to fire, theft and vandalism. Before renting equipment from an equipment dealer with named perils coverage, the renter should do their due diligence and become familiar with the terms of the rental agreement and which perils are covered. Many dealers use named perils coverage as a secondary option, preferring to collect a certificate of insurance from a customer before the rental period begins.
Another more comprehensive coverage option for damage waivers is called all-risk coverage. With all-risk, damage is covered unless specifically stated otherwise. Based on our own internal data, all-risk covers about four times as much as named peril options. All-risk is usually an insurance-backed damage waiver and not a self-funded option.
With damage waivers in general, equipment dealers and rental houses have a decision to make about how to handle deductibles. Some equipment dealers simply pay the deductible themselves, and some choose to pass this cost on to their customers.
If the deductible on a damage waiver is lower than the deductible on a customer’s property and casualty insurance policy, the customer may choose to purchase a damage waiver from the dealer even if the customer has adequate insurance to cover the rental equipment. If the deductible for the damage waiver is higher than the customer’s insurance deductible, the dealer can communicate the value of the damage waiver in other ways. For example, any claims on the damage waiver will not count against a customer’s business insurance policy.
Depending on the type of damage waiver—named perils or all-risk—the sales process will look very different. For all-risk coverage, where the customer may be better protected than under their insurance policy, the damage waiver may be a true value-add, making the selling process easier because the value is easily communicated. For named perils, the coverage may be a secondary option to collecting a certificate of insurance.
We have seen the most success with damage waivers that are sold as “opt out” protection, meaning the damage waiver is added to the rental contract by default unless specifically opted out. However, we only recommend an opt-out format when the damage waiver coverage is extensive and meaningful, and not treated as an added fee for rental customers. The goal is protecting the customer and the long-term relationship with the customer, not simply trying to increase rental sales.
Damage waivers do not include liability coverage for rented equipment. If an equipment dealer is selling a damage waiver to a customer, the customer still needs to provide liability coverage that protects in the event of damage to other people’s property or bodily harm.
For example, a customer rents an excavator with a damage waiver in place, and accidentally runs the bucket into a contractor’s vehicle or into a building on a job site. The damage waiver may repair the excavator (depending on what is covered by the waiver) but will not pay for the repairs to the contractor’s vehicle or the building. This kind of claim would need to be filed under the customer’s liability policy.
We hope this blog has been helpful for you as you learn more about damage waivers. Click here, to read all blogs about JT Bates Group products and services!