Published in Dealer Magazine, June, 2008
A recent NADA article stated that auto dealers “are examining every aspect of their operations with an eye to slashing costs.” A dealer quoted in the same article said, “We have to scrutinize every expense - we need to pay attention.” A silver lining for dealers is the fact that the automobile dealer insurance market is once again seeing more insurers wanting to write new car dealers, creating a much more vigorous marketplace than we have seen in a good long time. It is also time for solid auto dealership risk management.
No, it’s not like it was in the late 1990’s but it’s a better and more competitive marketplace than in the recent past. Auto Dealers who aggressively seek quotes may well see two or three more insurance companies willing to quote and compete for your business than just a year or two ago. This is good news because, as we know, only competition drives prices and premiums down. Cutting your insurance costs through assertive insurance buying techniques is certainly far less painful than cutting employees.
As many of you have heard in my 20-Group presentations, buying insurance is 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 rising gas prices, 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, insurers will try to get the highest price for their policies that they think the market will bear. Quotes from other carriers, especially aggressive new carriers, are the best way to shake things up. But be careful: we have seen some agents for these new carriers promise amazing results and not deliver. So, don’t put all your eggs in one basket until you see the quote in writing.
Many dealers wish they could just stay with the same carrier and know they have the best deal. However, negotiating your way to the best price, with other quotes in hand is the way it works in a softening market. But you have to plan a bid process in advance.since it can take between 75 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 steps to reduce high losses, and you still want a good deal.
3. Your losses have been a disaster and you want coverage at an affordable price. In this case, please refer to my last article. The key here is losses.
No matter what your situation, an aggressive and effective bidding process is the solution to getting the best possible policy price.
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, which is a big mistake. Needless to say, a good bid can be made to look bad - and vice versa - if the bidders are bidding on different figures.
It is also possible for unscrupulous (worst case) or inexperienced 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. If your policy will be audited at year end, require the insurer to provide you with the actual rates and rating basis (inventory averages, employee count, etc.) they used to develop your quote. This information should be made available to you before you settle on the successful bidder. You must fill out the report form and annualize it or match up rates and the rating basis to determine an annual figure for a good comparison. If you wait until the policy is issued, the chances of finding an error are high. We constantly find rating errors, and they are rarely in the dealer’s favor.
Bidding your coverage every year will help you, no matter which of the three categories I listed previously your dealership may fall into. 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. 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. But remember that coverage quality is just as, 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 to be certain you are not giving up vital and valuable coverage by making a low-cost choice. All coverage forms are not created equal. Policies may be very broad in some coverage areas and narrower in others. A thorough analysis by a qualified professional of both coverage and price will ensure an objective, “apples to apples” comparison, and put your dealership in the best position to be successful, from an insurance perspective.
