Metal Theft Remains an Expensive Problem for Insurance Industry

By | August 26, 2016

Metal theft became a growing concern post financial crisis due to rising global demand for scrap metal, and although economic conditions have slowed demand recently, this expensive crime is still causing headaches for the insurance industry.

“[Metal theft] is a huge mess that can result in considerable claims,” said Thomas DeCotis, CEO of DeCotis Insurance Associates Inc., a Providence, R.I., based surplus lines wholesaler. “We’ve seen some cases where it’s been a total loss.”

Metal thefts appeared to decrease starting in 2014 when international demand began to lessen and the prices for metal and copper dropped to an all time low, said Annmarie Feeley Jones, senior real estate & risk management specialist at Chubb. However, low prices for metal and copper could result in costlier crimes.

“For thieves to make the same kind of money that they had in the past, they would need to steal a lot more metal,” she said.

The current retail scrap value of an air conditioning compressor from the roof of a building, for example, is only about $20 to $30, explained Mark Oldham, senior consultant and assistant vice president at Lockton. Although a metal thief can steal from a building in just a few minutes, the damage and replacement costs can be staggering, he added. The U.S. Department of Energy estimates that metal theft costs U.S. businesses around $1 billion each year, according to a July Lockton report authored by Oldham.

“For what [metal thieves] are stealing and what they get paid for it, the damage they create is enormous,” Jones added. “Somebody could steal copper from a building and get paid $200 for it, but it may create a $50,000 loss for the building.”

Michael Darcy, certified association executive and executive director at the New Jersey State League of Municipalities, pointed to one example that recently took place during renovations of a New Jersey office building. Thieves entered the building during the renovation process and stripped plumbing copper from the entire building, creating a significant loss, he stated.

“We’ve seen claims where insureds have gone out to check properties and thieves had broken in, determined where the plumbing was, chopped away the plaster and drywall on every floor and cut out the plumbing,” DeCotis added. “In those cases, you’re left with water damage because the property is flooded and the walls are destroyed.”

Varying Oversight

All 50 U.S. states have enacted laws intended to mitigate metal theft, but requirements vary by state, leading to some disparity in terms of how to best address the problem, according to a July report by the Institute of Scrap Recycling Industries Inc. The New Jersey State League of Municipalities, as one example, has proposed stricter regulation in the state of New Jersey – one of the top five states in the U.S. for metal theft claims, according to Lockton’s report. The proposal calls for additional recordkeeping requirements for the scrap metal industry as a way to track and deter metal theft.

“From the municipal level, we’re most interested in deterring the activity of the metal being converted to cash. Generally, that’s happening at the scrap yards,” Darcy said. “You have to make sure people receiving the stolen scrap material are being held to account for what they’re taking in.”

The proposal initially passed through the state legislature in 2013 and was then vetoed by Governor Chris Christie, who publicly stated he believed the additional recordkeeping would be overly burdensome on the scrap metal industry. The proposal is now back in the legislature waiting to move forward, Darcy said.

State Regulation Not Enough?

The New Jersey State League of Municipalities stated in its 2013 proposal that a similar program enacted in Maryland in 2009 has appeared successful in recovering more than $13.2 million in stolen property since launch. However, state regulation of scrap yards may not be enough to significantly reduce the problem, Oldham said.

“Even if we do successfully enact laws and regulation on scrap yards, the damage is already done by the time the scrap hits the yard,” he said. “Prevention is where you’ll see 90% of your return.”

Much of this prevention starts with building owners. One of the best ways property owners and management companies can reduce the risk of metal theft is to have a trusted local property manager regularly check on buildings, particularly buildings that are vacant, DeCotis said.

“As a surplus lines wholesaler, one of the largest classes of business we write is vacant property,” DeCotis said. “The longer the building is vacant, the more of an attractive nuisance it becomes. Probably the highest risk vacant properties are those found in inner city areas, where there is lots of urban blight. In older vacant properties largely found on the East coast, and especially in the Northeast, you have older plumbing made with copper.”

In fact, 98 percent of metal theft claims are for copper, Lockton’s report said. With this in mind, property owners and management companies are becoming smarter about protecting their buildings, Jones explained. Many will mark air conditioning units and equipment on the roof of their buildings to say “do not sell.” If it’s stolen, the thief can’t sell it, because those words have been etched into the metal, she said. If a building is vacant, it is also important to keep it well maintained, landscaped and cleaned, as well as alert local authorities about the discontinuation of operations, Lockton’s report stated.

“Because metal thefts are a crime of opportunity, we need to lessen the opportunity,” Oldham said. “Owners shouldn’t let their buildings appear vacant to someone who has larceny in their heart. Thieves like to harvest low hanging fruit, so you don’t want your property to look like low hanging fruit.”

About Elizabeth Blosfield

Elizabeth Blosfield is the East region editor at Insurance Journal. More from Elizabeth Blosfield

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