Rumours have been swirling around
for some time now that residual value insurance (RVI) was going to
make a comeback in the UK operating lease market. But it certainly
seems that lessors’ opinions are divided about the value of
RVI.
Many think the premiums make RVI too
expensive, or that the conditions attached to the insurance policy
are so stringent that it would be near-impossible to meet them,
should the need to call up on the insurance occurs.
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“It’s been something difficult to deliver,”
said one lessor. “Most RVI products have been based around
embedding onerous return clauses into the agreement itself.
“They will say something like: ‘Hello Mr Local
Authority, I would like you to return those personal computers in
the original boxes, with the original manuals and original CDs, in
what I deem to be subject to fair wear and tear; but I want you to
deliver them to my Baghdad office between the hours of 3am and
3.30am.’ – it has been a bit of a mockery.”
But although RVI perhaps doesn’t lend itself
too well to technology assets, it can certainly still be attractive
for lessors and banks financing hard assets. The idea is that the
insurer underwrites the residual value of the asset so that RVs are
guaranteed via this insurance; and for lessors or brokers dealing
with the public sector, RVI can be even more attractive, since
there are near-zero delinquency rates. This attractiveness makes
banks – generally not big public sector lessors – more interested
in leasing to this sector.
For example, bank-owned lessors such as KBC
Lease all but stopped writing volumes of public sector business
once RVI was withdrawn in the early part of this decade.
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By GlobalData“If there is a product out there whose
conditions aren’t unfair on both parties, and don’t make it
unrealistic to return; then I certainly think it would be a
worthwhile proposition,” a broker commented.
Not everyone is optimistic.
“There is clearly less demand for RVI in the
hard assets space, since most hard-asset lessors generally have
enough knowledge of their assets to guarantee future residual
values themselves,” said another broker.
“The whole point of the operating lease is
that risks of ownership lie with the lessor.”
Jason T Hesse
