Dealers Asked and We Answered your Dealership Insurance Questions
by : Roger Beery

Over the past six months, Austin Consulting Group has taken part in a number of webinars regarding auto dealer insurance. How to buy it; how to get the best deal; and what to look out for.
During the webinars, the participants have asked some very good questions. It seems to me that if the folks on the calls wanted answers to these questions, you might too. So here are some of their questions…and the answers.

“I’ve read lately about some very large employee dishonesty claims at dealerships. How much insurance should I carry?”
Obviously there is no single answer to this question. We too are seeing more large claims, some in excess of $1,000,000. Usually these crimes are committed by a trusted employee over a number of years. Often the theft starts with the intention of repayment by the employee. Sometimes it is difficult to get insurance companies to quote for more than $500,000. In that case, you may want to get quotes for a position bond in excess of your basic limit for those employees who may have greater access to dealership funds.

“How much time does it take an insurance company to prepare a quote and how much time should I give them?”
Once an insurance company has all the information it requires, the time to prepare the quote is fairly short. However, it does take time for the insurer to gather and verify the appropriate information, including scheduling inspections. There is no benefit to you to wait until you are up against your renewal to ask for quotes. If you wait until your renewal is in hand, it’s probably too late. While insurance companies can move quickly if they want your business bad enough, why push it? I suggest you begin your bid process about 90 to 120 days prior to expiration.

“I hate the fact that I get my renewal and other quotes at the last minute. What can I do?”
There is a temptation to demand that your quotes be delivered a few weeks before expiration. There is no harm in asking; however we’d suggest you make this a “soft deadline.” Most insurance companies are set up to offer their quotes fairly close to expiration. One reason for this is to reduce the time a dealer has to allow other bidders to match an aggressive quote. Adhering to a hard arbitrary deadline may mean that you miss out on a very good quote that could be submitted after your deadline but before your expiration.

On a side note, we do not recommend that dealers allow bidders to see another’s quote. While you may receive some short-term benefit, there’s a good chance the bidders will feel cheated and not return to the bidding table when you need them.

“How do I know that all the bidders are using the same information to prepare their bids so I can compare apples to apples?”
This can be tough because many bids will not include the rates and rating basis used to prepare the quote. As you know many of your premiums are variable; based on the number of employees, auto inventory levels, etc. I would be concerned about a bid that provides no rating information. You should have no problem requiring this information prior to choosing the successful bidder. If the bidder’s policy uses a monthly reporting form, you should get a copy and plug in your numbers to see if the premium matches before making your selection. If there is no reporting form, require the agent to go through all the rating basis and rates with you. Make them do the math for you to see.

“Is a $25,000 limit enough for Errors and Omissions coverage?”
In short, no. Remember, these limits include both your legal defense and what ever is paid out in settlement or judgment. The argument you may hear is that if you have more coverage, you’ll just get sued for more. We don’t buy that argument and in any case if the insurer is wrong, you’re the one who gambled and lost. In these types of claims you are usually looking at the value of the car sold, legal expenses, plus all the other atrocities claimed in an attempt to get treble damages. We would recommend no less than $100,000, but $250,000 to $500,000 is better.

On occasion we still see E&O policies limited to Defense and Settlement. This policy language is not to your benefit because there will be no payment for a court awarded judgment, if the case goes that far.

“We’ve done a lot to improve our losses but old claims still show up on my four-year loss runs. What should I do?”
Advocate for your dealership. When you supply your loss runs, include a description of all the loss control efforts you have made and an explanation of their effectiveness. As an example, if you had a rash of employment practice claims but have since installed a state-of-the-art Red Flags and Compliance system, explain what you have done and how it has positively impacted your claim experience. The same goes for any other type of claim. If you had a vehicle theft problem prior to installing a new security system, tell the insurance company all about the new security system. If you wait for the insurance company to ask for an explanation of your claims, they may not. Explaining what you’ve done and the successes you’ve had will let the bidders know you are serious about loss control. They may be more willing to aggressively bid your account.

“I’m trying to compare two Employee Practices policy. One has defense outside the limits and the other has defense inside the limits. What does that mean and should I care?”
Yes, you should care. As an example, let’s say the policy has a $1,000,000 limit. With a policy that offers defense outside the limit the $1,000,000 is available to pay the judgment or settlement. The cost to defend your claim is paid by the insurer in addition to the $1,000,000 limit. If defense is within the limits then the $1,000,000 will be split between your defense cost and any settlement of judgment. Some insurers who issue policies with defense inside the limit will offer to sell additional defense limits.
If you have other questions you like to see answered in future articles, I’d love to hear from you. Please feel free to send your questions to me at rbeery@Dealer-magazine.com.

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.