Several years of construction equipment and cargo theft claims have some carriers in the inland marine and equipment insurance classes reacting with higher rates while others are opting to exit the class altogether.

Insurers entrenched in these segments need to be more proactive in decreasing claims if they want to reduce their losses, say underwriters.

"The motor truck cargo industry as a whole has seen a huge increase in theft," says Helen Leonard, inland marine product leader for Allianz Global Corporate & Specialty, in Richmond, Va. "I can't tell you one company that is making money with this class in the last year."

Leonard says electronics used to be the most stolen items, but other commodities have moved up the list.

"Now we worry about food," says Leonard. "Because of the economy and people not having jobs, they are stealing food and selling it, keeping it, or giving it to others."

Leonard says food thefts are less likely to be recovered because of spoilage, unlike with electronics that have no expiration date. "Unless you find that truck in the first hour or the first day, the likelihood of finding it is next to none."

Robert Schauer, president of RLI Marine in N.Y., says abandoned construction sites – a common occurrence since 2008 – have been prime targets for thieves because expensive equipment can be left with little or no supervision. Schauer says unemployed contractors and construction workers also create a moral hazard as people get desperate.

"The economy goes down and bad guys go out," says Schauer.

However, new technology and better risk management procedures from organizations like the National Equipment Register (NER) and CargoNet have given insurers and insureds the ability to fight back against the equipment and cargo theft epidemic. Both are divisions of Verisk Crime Analytics, a member of Verisk Analytics that offers risk assessment and management services.

NER works as an information source for law enforcement, the insurance industry and equipment owners in preventing heavy equipment from theft and providing resources if a theft occurs.

NER maintains ownership databases with more than 25 million records for law enforcement to use, according to Ryan Shepherd, general manager at NER in Jersey City, N.J. NER also compiles loss information from claims, analyzes that data to make sure it is correct and places it in its theft database, where it stays forever in case an item is ever recovered.

"These equipment items are still very valuable for many years after they have been stolen," says Shepherd.

CargoNet was launched in 2009 by Verisk Crime Analytics and the National Insurance Crime Bureau (NICB) to increase recovery rates of stolen cargo. It works through secured and controlled information sharing among theft victims, the insurance industry and law enforcement. CargoNet is available to any size manufacturing, transportation or retail company and tracks thefts for any commodity that is in transit or being stored in a warehouse prior to its final destination.

The goal of CargoNet is to get accurate and timely information about a theft out to experts and law enforcement to improve the chances of a stolen item being returned.

"There is a huge lag in reporting and common sense tells you if you wait five days, the bad guys have five days on you," says Anthony Canale, vice president of Verisk Crime Analytics in Jersey City, N.J. "When reports are taken and distributed in a timely fashion, the opportunity for recovery is higher."

Canale says CargoNet also gives better insight to underwriting teams by tracking information like the top states with the most theft (Calif., Fla., Ga., Ill., Ind., N.J., Pa., N.C., N.Y, Tenn. and Texas), what commodities are the most vulnerable at any given time (copper, electronics, food), and what days of the week are prime cargo theft days (Friday, Saturday, Sunday, Monday).

"If you are an underwriter and you are tasked with measuring risk for your insured, your transportation company needs to know what items need higher levels of security. This is valuable information," according to Canale.

RLI and Allianz are two carriers that have recently taken their theft prevention and recovery efforts a step further through their partnerships with these organizations. The companies have added incentives to encourage insureds to be proactive in preventing equipment and cargo theft, or increase the chance of recovery if/when a theft does occur.

In December, 2011, NER expanded its theft prevention and recovery resources with the launch of IRONwatch, which is a GPS tracking device applied to a piece of equipment. However, Shepherd says, the device is not activated unless the equipment is stolen so the customer only pays for monitoring if it is needed.

"One of the big problems with GPS is the monthly fee customers have to pay to have the device and monitor it," says Shepherd. "If you have [IRONWatch] on the machine for 20 months, you are not paying for 20 months so there is a value to users that don't want to pay a monthly fee."

RLI has jumped on board and said it will pay the $200 activation fee in the event of a theft if an insured buys the device at a cost of $400.

"If we have a client who has a theft problem, this is a great way to mitigate a pricing increase," says Schauer. "We think it will be a good underwriting tool for us."

In addition to paying the activation fee on the NER GPS device, RLI waives the theft deductible for clients who are registered with NER.

Schauer says technology like IRONWatch is a necessity for insureds.

"These are valuable assets," he says. "The cost of getting a tracking device on the equipment is paid for ten times over the first time something gets stolen."

Allianz has formed an agreement with its U.S. affiliate AGCS Marine Insurance Co. to waive the theft deductible on an insured's policy up to $5,000 if the insured is a member of CargoNet and reports a loss to law enforcement and CargoNet within one hour of the theft discovery.

"We felt like if insureds were a member of CargoNet they should get something from us," says Leonard. "We are waiving this deductible as an incentive to them to protect their loads and to care about their loads and loss ratios with [Allianz]."

Allianz was one of the first insurers to join CargoNet and provides a 20 percent discount to insureds on a CargoNet membership. CargoNet members are also given stickers for each truck or trailer they own that shows it is protected by CargoNet, which Leonard says they hope is a theft deterrent.

Canale says Allianz's incentivized deductible waiver is clearly tied to prompting insureds to change their behavior.

"Quicker reporting allows CargoNet to get the information out to law enforcement partners and ensures a greater possibility of recovery and better data capture, which allows for a stronger understanding of risk," he says.

Leonard says agents have been excited about Allianz's proactive approach.

"They are applauding that someone is doing something – not just getting out of this business but finding a way to make money and stay in."