What if your garage insurance agent or broker came to you next month and said, “I’ve got really great news. I can guarantee your premiums won’t go up this year and may go down.” How would you react? I think a lot of dealers would breathe a sigh of relief, not worry about getting any other quotes and spend their time focusing on making other parts of their dealership more successful. However, that may be a poor decision that costs you money and ultimately profits.

Do you have the same number of employees and payroll today as you did a year ago or are you a “leaner and meaner” dealership operation? Do you have the same levels of vehicle inventory that you did a year ago? Most dealers do not. So if you’re a “leaner and meaner” dealership, why are you relieved to have your insurance cost not go up? Shouldn’t your reduced exposures result in lower premiums? Of course it should. This is what we call the “stealth hard market.”

In insurance-speak, a hard market is a seller’s market. Think of the rising garage insurance costs and coverage limitations you saw beginning in the fall of 2001 and lasting through 2003. We saw fewer insurers offering dealers coverage and premiums were going up. That’s a “hard market.” Beginning in 2004 we saw rates stabilize and even decrease a bit. A few more insurers entered the dealership arena. Maybe it wasn’t what we’d refer to as a “soft market” like the late 1990s, but it certainly was a softer and more vigorous market than we’d seen a few years earlier.

So why does garage insurance go through these pricing cycles? There are any number of pieces to that puzzle, depending on which cycle we’re in. However, the one big piece that affects every insurance cycle is insurance company investment income. When investment income is high, insurers will, when forced by competition, drop their prices to pick up market share and increase cash flow to feed their investment animal. Generally, when investment income diminishes or investment losses are the rule, insurers try to raise premiums to make up for the investment losses. This very scenario played out in the late 1990s when the stock market was soaring and insurance rates were dropping. After the bursting of the tech bubble in 2000 and the stock market losses related to 9/11, premiums skyrocketed.

There’s no question where we are today. Insurers have taken a big investment hit like all the rest of us.

Fortunately, the improvement in the stock market since March has helped insurers recoup some of their losses. The vigorous insurance market has made it difficult for insurers to overtly raise premiums.

This brings us back to the more covert, stealth hard market. In 2002, when your insurance rates went up, you saw it in higher premiums. It was obvious. This time it’s not so obvious because you’ve downsized.

You’ve probably downsized both the number of employees you have and the amount of auto inventory you keep on the lot. Your garage premiums are partially based on the number of employees you have and your inventory levels.

So if your premium remains the same as last year and you have fewer employees and less inventory your rates must have gone up. When this crazy auto market turns around and you begin to re-hire, you’ll be paying much higher premiums than you were before you downsized. As you can see, simply not raising your premiums when you’ve been downsizing is not as good a deal as it may sound.

Even in this era of more efficiently run dealerships, some insurance carriers still insist on basing their renewal quotes on historical data. Instead of basing their quotes on your new realities of fewer employees and fewer autos on the lot, they will still base the quote on what your dealership looked like a year ago. If you are taking competitive bids, using out of date information can make the renewal bid look higher than it may ultimately be; putting the renewal carrier at a competitive disadvantage. On the other hand, if you just renew your coverage you may be lending the insurer additional premium dollars that they may refund after your policy has expired and been audited.

The only way to be certain you are paying the lowest possible premium in any market cycle is to create a competitive environment where insurers compete for your coverage each and every year. Comparing your premiums to your peers’ premiums doesn’t offer much useable information. When dealers supply premium information to 20 groups and similar dealer bodies there are too many variables such as loss experience, geographic location, and floor plan insurance to make that comparison very meaningful.

Unfortunately, you can’t wait until your insurer gives you a renewal price to decide what you want to do. It’s too late then. The prudent dealer begins the bid process 90 to 120 days before renewal and is ready to negotiate coverage, deductibles and premiums at the end. As a result you will know you have the best premium and the best coverage available in any market cycle.