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Risky Business: Choosing the Right Insurance Carrier, Coverage and Contract for Your Dealership

If you are like most dealership executives, you view the insurance selection process as a necessary evil that is best handled by your chief financial officer (CFO) or key management staff. Although this form of delegation may have worked well for your dealership in the past, it will benefit you and your dealership to take an active role into the insurance decision-making process.

In light of economic conditions resulting in decreased auto sales and an increased need to monitor expenses, dealer principals are becoming more involved in decisions previously left to others within the operation. Choosing the right insurance carrier can save dollars upfront and in the future. For example, some insurers provide dealerships with payment programs or reporting procedures that enable owners to take advantage of expense reductions with efficient staffing and more manageable inventory levels.

Because you know your business operations better than others do, it is crucial that you take a leadership position to help protect them. By recognizing your dealership’s risks and realizing that proper insurance coverage can help protect against those risks, you can work with an insurance carrier to select appropriate coverage for your specific business needs.

Consider the three “Cs”
If you want to protect your investment, you must consider the Coverage, Carrier and Contract. Dealerships invest significantly in both property and inventory. You also face considerable risks in selling and servicing automobiles. As with most retail businesses, auto dealerships offer a variety of opportunities for lawsuits to arise in daily customer transactions. It is crucial that you choose appropriate insurance coverage and policy limits to adequately protect the inventory, property and liability risks inherent in your business.

When selecting a new or replacement insurance carrier for your dealership, it is important to look for the following characteristics:

  • A carrier with top-notch financial strength and stability, along with many years of experience insuring auto dealerships
  • An insurer and local representatives with proven expertise in the auto dealer industry
  • A representative who understands your operation and the local/regional issues confronting your business
  • Carrier involvement with national, state and local auto dealership associations, so your insurance representatives can discuss timely industry issues while maintaining communication between the insurance industry and dealership members

Regarding specific insurance contracts or policies, yours should:

  • Be designed for the auto dealership business and not a generic business insurance policy
  • Provide coverage designed to reduce exposure to risks and legal issues specifically addressing the auto dealership industry.
  • Offer a combination of simplified, efficient and customer-focused billing and claims adjustment
  • Include a “package policy” (written by one insurance company) with specific coverages necessary for an auto dealership to avoid gaps versus separate policies from different insurance companies with varying terms, conditions, premiums, etc.

When choosing coverage, be sure you:

  • Select property coverage with the best available replacement cost terms and conditions. When a property claim occurs, you will want to have coverage that pays to completely replace all of your insured items so you can get back to doing business as quickly as possible.
  • Utilize replacement cost appraisals and up-to-date asset inventories to purchase sufficient coverage insuring all dealership property to its full value.
  • Purchase business income coverage to replace lost earnings after a claim. It’s not good enough to merely cover your building and its contents against fire if you have no way of earning income while you are rebuilding. Business income insurance provides funds to pay regular expenses and payroll until you can resume operations.
  • Choose liability coverages that offer protection against legal risks inherent to auto dealerships such as completed operations, truth-in-lending/leasing, prior-damage disclosure, customer complaint lawsuits and identity theft.
  • Ensure that liability coverages are written on an “occurrence” basis, rather than a “claims-made” basis. The latter may appear more cost-effective upfront, but you will likely incur additional costs to purchase an extended reporting period. For example, your dealership could be presented with a lawsuit today for an accident that occurred more than one year ago. An “occurrence-based” policy requires no additional premium charges after the policy expiration date and you can report claims at any time in the future. If you must purchase an extended reporting period under a “claims-made” policy, the additional premium could cost up to 200 percent or more than the original premium for a few additional years.

In addition to coverage, carrier and contract, there are a number of services that insurers can provide at no additional cost or for a nominal fee. Look for a carrier that provides the following: risk management, loss prevention training and services, appraisal services, and a catastrophe team (including salvage services).

The bottom line is: the more your insurance representatives know about you, your employees and your business, the better equipped they are to offer solutions customized to your operation. Beware of carriers with limited auto dealership knowledge and claims experience. Don’t be afraid to ask for references and inquire about the depth of their experience with other local and regional dealerships. More than likely, if the representatives lack knowledge about your industry, you’ll find it difficult to seek their guidance and counsel.

Whichever carrier you select, it is important that its representatives continually work with you to keep your best interests in mind as your business evolves.

Vol 5, Issue 3

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