Keep on Top of these Insurance Market Changes
by Roger L. Beery

In my last article, I predicted a growing instability in the dealership market along with the possibility of increased premiums for dealers who simply renew with their current carrier. Our experience over the last few months shows that the instability is increasing and therefore price increases are probably not far behind. Here are some of the changes we’ve seen over the past three months.

Premium changes
Are you really getting a fair renewal rate if your agent promises you little or no premium increase? Needless to say, any insurance carrier would like you to renew your insurance without question and without getting alternative quotes. To that end, we are hearing of more and more agents telling dealers they should not get other quotes because next year’s premium will be the same or less. Here’s the catch, if you have been downsizing both employee counts and inventory, you should expect to pay less. The carrier would have to raise their rates for you to pay the same amount since much of your premium is based on employee counts and inventory amounts. The only way to check to see if you are getting a real reduction is to compare rates or reporting forms. If your rates are higher and dealerships rebound, you will be paying higher premiums before the policy expires.

Changing carriers
In most stable market environments we see about 25 percent of our clients change insurance carriers to take advantage of better pricing. Often in a good market, the existing carrier will match the competition (lower their price) to keep the business if the dealer has other competitive bids. Sometimes they may even lower the renewal price to head off competition.

Over the last three months we have seen the number of dealers that switch carriers to keep their pricing competitive, improve coverage or both almost double to nearly 50 percent. Had those dealers who switched not had other insurance proposals to choose from, they would have faced higher premiums during these very difficult times.

Financial statements
Insurers have requested dealer statements for many years. The information contained in a dealer statement helps the insurer properly quote your coverage. However, we are now seeing the request for financials become a demand for dealer statements. Some carriers are digging in their heels and will not quote without a dealer statement in hand. Needless to say, many dealers are now reluctant to release dealer statements.

There are legitimate reasons insurers want to see dealer statements beyond the obvious. Experience has shown that during challenging times expenses related to loss control are often early casualties of expense cutbacks. Discussing your ongoing loss control efforts can only help your cause. If you are concerned about releasing your financials to a local agent, many insurers will allow you to send the information directly to the underwriter, which reduces the possibility that your financials become the talk of the country club cocktail hour.

Coverage changes
As the insurance market begins to tighten not only do premiums go up but also some coverages may become more restrictive. Over the past few months we have seen a few insurers try to slip in changes at renewal without notice or discussion. The requirements for notification of policy and premium changes vary dramatically from state to state. Here are a few items to discuss with your renewal carrier.

Redline or credit discrimination exclusions
One new twist we are seeing a bit more are exclusions related to any claims of discrimination in the lending process as part of your Employment Practices Policy. This exclusion is often absolute. However, they still are the exception and not the norm. Usually when these types of claims occur the dealer is totally unaware that the lender is engaged in discriminatory practices. Still the dealer gets sued as part of the transaction chain. Some insurers believe that the tight credit market will lead to an increase in credit discrimination related claims. Remember, if you are presented one of these exclusions, there are other carriers that do still provide coverage.

Repair and replacement
Often dealers who do not own their own body shops opt to cover the repair and replacement of their own vehicles at 100 percent of the cost rather that the more common 75 percent. This makes sense because the dealer will have to pay another body shop for the repair. The 75 percent level anticipates that the dealer who has their own body shop will break even at that level when he repairs his own vehicles. That said, we have seen some companies slip in an added endorsement that reduces 100 percent repair and replacement to 75 percent in the event of hail, just when the dealer needs the 100 percent coverage the most. We strongly suggest that if you carry 100 percent repair and replacement coverage that you confirm with your insurer that hail damage is included at that level.

Limits and deductibles
A few insurers are trying to reduce coverage limits in key areas of your policy that may not be obvious to you. The first is Errors and Omissions coverage. We suggest the dealer carry a minimum limit of $100,000. However, $300,000 is better. We have recently seen situations where the expiring coverage limit was $300,000 and the renewal policy included only $25,000 of coverage. Limits as low as $25,000 can easily be breached when you consider the cost of defense and settlement.

Another area that is easily changed is the deductible for Employment Practices Liability. A deductible of 10 percent can easily be changed to 25 percent. The cost to the dealer caught unaware could be very high if faced with a large claim.

Of course any deductible or limit can be changed at renewal, these are just a couple of the more common examples.

As always, we recommend that you create a competitive environment by bidding your coverage every year, especially during these challenging economic times. However, if you choose to simply renew your coverage, be careful. Ask for a written detailed list of any and all changes to your policy and specifically ask about the issues mentioned in this article. Just because you renewed with the same insurance company doesn’t mean the coverage will be exactly the same.

Roger Beery is president of Austin Consulting Group, Inc., a firm that specializes in helping dealers cut their insurance costs and maintain optimum coverage by bidding their policies.