Power Protection

Extended Service Contracts limit a key financial risk of vessel ownership

The engine room is the heart of any vessel. It’s also the place with the most moving parts. Today’s marine engine and propulsion systems are more complex than ever. If something goes wrong, repairs can mean a potentially big financial hit.

Factory warranties mitigate those risks, but they only go so far. How can you protect yourself after the warranty runs out?

Alexander Tumanov has a number of ways to answer that question, in form of Extended Service Contracts (ESCs) from Caterpillar Financial Insurance Services. Tumanov, who manages Cat® ESC sales for the Americas, says Extended Service Contracts add an important level of financial security to vessel ownership and operation.

“Think of an ESC like an extended maintenance warranty for an expensive car,” he explains. “Your collision insurance covers you if you have an accident but not if your engine fails. We cover the customer of there’s an unexpected failure in the engine room, which can be the most expensive part of the vessel to fix.”

Different Strokes For Different Boats

Cat Marine offers Extended Service Contract plans for all types of vessels, from private yachts and sport fishing boats to commercial vessels for tug and salvage operations.

“It doesn’t matter whether the engine is brand new or years old,” Tumanov adds.  “Our Marine new ESC extends vessel engine coverage for five years after the delivery of a new engine or generator set to the customer. Then we have a program called Advantage that covers, say, a four- or five-year-old engine all the way to ten years from the delivery date. Advantage basically takes it to the first overhaul.

“From there, we offer a plan that covers the engine after it’s overhauled by a Cat dealer, including replacement components, the original parts still on the engine, and the dealer’s workmanship. We essentially cover the full life cycle of the engine, from birth to rebuild and beyond.”

Along with mitigating the financial risks for a major repair, Tumanov says the other big advantage of an ESC is that it makes the repair process so much easier.

“Having an ESC minimizes the administrative burden of getting the engine fixed. You don’t have to worry about labor rates or differences in parts prices, or whether those parts might be counterfeit. With one of our ESCs, Cat dealers provide genuine original parts and all Cat-trained mechanics. The repair will be completed timely, and our claims and repair process is pretty much best in class. It doesn’t take long for a dealer to make a claim and get the repair moving.”

ESC vs. Hull Policy Insurance

You do pay up front for such coverage, but Tumanov points out that the plans’ narrow focus helps to keep costs and deductibles low. 

For comparison, Tumanov says, a comprehensive whole-hull insurance policy “offers significant coverage that can include both property damage and liability risks, but it comes with a high deductible—can be $50,000 to $100,000 depending on a vesel.  If you have an engine failure, you’ll have to pay that deductible out of pocket before you can get it fixed.

“An ESC doesn’t have a deductible or a smaller one. That’s because we just cover the engines or generator sets. We’re not touching other parts of the vessel. That allows us to minimize deductibles and reduces the rates to sensible numbers.”

Of course, where budgets are tight, it’s easy for a vessel owner to wonder if an ESC is worth the investment. Tumanov counters that concern with a cautionary tale.

“We had a customer who had an ESC on his fleet. He said, ‘We’ve paid all this money and we haven’t had a claim. Should we be cutting these costs?’ Shortly after that he had a big failure, something that doesn’t happen very often. His ESC paid for it and they didn’t have any headaches. No adminis­trative hassle. It was fixed quickly and the customer was happy.  In the next conversation he told us, ‘We get it now.’”

Free ESC Coverage Opportunity

There is one way to zero-out the cost of getting a Cat ESC, Tumanov says, at least for commercial vessels.

”There’s a free ESC program tied into our Commercial marine overhaul kit. The kit includes the seals, gaskets and componentry needed to overhaul an engine, either a top-end or major in-frame overhaul. The kit can also include ESC coverage It’s called a Bundled Repair Solution. Caterpillar currently includes free ESC coverage for two-years or 6,000 hours.”

Another option available to Cat customers is Cat Financial Commercial Account – providing unsecured lending to customers to buy parts or services. There are programs that offer zero or highly reduced interest rates to customers buying ESC, which limits the required out-of-pocket investment.

Whether included with a new vessel purchase or added down the road, Tumanov says it’s wise to take a pragmatic view of Extended Service Coverage. He explains, “Buying an ESC isn’t an annuity on expected failures. You shouldn’t go into one expecting that you’re going to be repairing your engine every year. You’re mitigating your risk. But if something does happen, we’re gong to take care of you and you are really going to be thankful that you have it.” 

Protect Your Engine & Your Peace of Mind

Extended Service Coverage Infographic

Learn three ways a Caterpillar Extended Service Contract protects your engine and your peace of mind.

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