Published in Dealer Magazine, October, 2006
When the insurance market tightens and premiums are going up, bidding your insurance seems like a good idea and worth the effort. When insurance premiums are stable or falling, the idea of bidding insurance can seems like a good thing to put on the back burner. However, you may be missing out on the opportunity to significantly reduce your premiums and send those savings to your bottom line.
As many of you have heard in my 20-Group presentations, buying insurance is a like buying most anything, even cars. The seller wants to get as much as he can for his product. It’s not their fault; insurance companies are entitled to a profit like anyone else. But unlike that flat panel at Best Buy, insurance premiums are negotiable. Even more importantly, every extra dollar you pay is one less dollar of profit on your bottom line. Prudent dealers understand this concept and do all they can to minimize their insurance costs without sacrificing coverage. It can and should be done. An assertive and effective bid process is the best way to achieve this goal.
Unless challenged, most insurers will try to get the most for their policies that they think the market will bear. Quotes from other carriers are the best way to challenge them. Sure, many dealers are irritated by this annual dance and wish they could just stay with the same carrier and know they have the best deal. Some dealers even change insurers in anger over having to force their carrier to give them their best price. However, negotiating your way to the best price, with other quotes in hand, is the way it works in softening market. But unlike buying that TV you have to plan a bid process in advance.since it can take between 45 and 90 days to do it right.
Your situation probably falls into one of three categories.
1. Your losses have been and remain low, so you feel you should get the best rates in the market.
2. Your losses are just OK or you have taken strong step to reduce high losses, you still want a good deal.
3. Your losses have been a disaster and you want coverage at an affordable price. Please note for future reference, the key here, is losses.
No matter what your situation, an aggressive and effective bidding process is your answer.
To achieve an aggressive and effective bid process, there is one important rule that must be followed. All bidders must bid on the same values. Your bidders should also be able to prove to you that they are bidding on the values you have provided. Much of your insurance coverage is based on variables such as auto inventory, numbers of employees and payroll by class. Regardless of what variables the prospective insurer has used, in most cases you will pay for the exposures you ultimately have. Often dealers inadvertently give different exposure bases to different bidders - big mistake. Needless to say, a good bid can be made to look bad and visa versa if the bidders are bidding on different figures.
It is also possible for unscrupulous bidders to use rating figures other than those you have requested. Often they will not reveal their unilateral change to you, unless you specifically ask. One major carrier will use the average of last year’s reports even if you request otherwise. There are two problems with this. First, it makes any comparison difficult since you have to manually adjust the bids to get an “apples to apples” comparison with the bidders who have followed your directions. Second, it gives the changing dealership an artificially high or low quote. Use values that reflect what you anticipate will happen in the next twelve months, that way you should be able to budget more effectively. The best way to check for rating accuracy and to compare the ultimate premiums, is to require insurers to provide you copies of their reporting forms. The reporting forms should come to you before you settle on the successful bidder. You must fill out the report form and annualize it to determine an annual figure for a good comparison. If you wait until the policy is issued the chance of your finding an error are high. I can say we find reporting form errors much of the time. They are rarely in the dealer’s favor.
For those of you who did not compare your reporting form premium to your bid last year, I would suggest you take out last year’s quote and compare it to what you will pay if you annualize last month’s reporting form. Before you call your insurer with any inconsistencies, be sure to check the current variables against what you gave the insurer to base their bid upon. Bidding your coverage every year will help dealers in all three categories listed before. Competition is a wonderful thing. Remember, the insurance market is fluid and constantly changing. Even the dealership with bad losses can benefit from having multiple carriers look at their business. At the time this article is being written, we at Austin Consulting are beginning to see a few new carriers enter the market, often on a regional basis. The increased competition and downward pricing pressure of new aggressive carriers will only improve the insurance market that much more.
All we’ve talked about here is price. Coverage quality is just if not more important. If you are going to embark on a bid process, you must be able to analyze the intricacies of each carrier’s policy form. All coverage forms are not created equally. Some policies may be very broad in some coverage areas and narrower in others. A thorough analysis of both coverage and price will put your dealership in the best position to be successful, from an insurance perspective.
