As a result of my first article full of dealer’s questions about their garage insurance, more have come in. If you have any questions you’d like to see answered, feel free to contact me. If you have a question, someone else is wondering the same thing.
We are closing a dealership, what do we need to consider from an insurance perspective?
The answer to this question can be very complex, depending on the circumstances. To some extent it is a legal question which may result in different answers depending on your specific situation and whether or not bankruptcy is part of the outcome. In any case here are some basics. If you are closing a dealership that is part of a larger dealer group it is a bit easier. Often there is not much to do other than to make sure your variable rating basis such as employee counts and inventory levels reflect any changes so you don’t pay for exposures you no longer have. It will also be important to keep the now defunct dealership as a named insured on future garage and umbrella policies. Some carriers will offer coverage for “discontinued operations” which is something to consider if the coverage is broad and the premium is reasonable.
If you are converting a franchise auto dealership to a pre-owned dealership, much of what I wrote above would apply. However, when you look for insurance at renewal, it will be important to seek bids because many of the insurance companies you worked with in the past may not offer coverage to a stand-alone pre-owned dealership. There are also a few companies that write pre-owned stores that do not insure franchised dealers.
If you are closing your dealership and going out of business the “discontinued operations” coverage mentioned above may be your best option for covering potential claims that occur after your dealership is closed. You may also have lease obligations for buildings and property. If you continue to have insurance obligations for vacant buildings, expect the coverage to be difficult to find and quite expensive.
Check with your attorney to determine what obligations and potential liabilities you may have after your dealership is closed.
Should I get bids on my auto inventory coverage? Don’t the manufacturers offer the best plans?
Over the past few years it is true that many of the manufacturer floor plan insurance programs were pretty hard to beat. However, over the past year we have seen more and more stand-alone plans enter the market. This gives the dealer flexibility to consider bank floor plans that may be advantageous. While the basics of auto inventory are very similar, we are seeing an increased willingness on the part of stand-alone carriers to offer aggregate deductibles for hail at lower levels than we’ve seen in a while.
On a side note, many dealers who insure their used inventory with their garage carrier and do not have their own body shop will purchase repair and labor levels at 100% in lieu of the more common 75%. The theory is that the dealer without a body shop will have to pay retail repair and labor prices when a dealer with their own body shop will have a lower cost of repair. That said, some carriers will offer 100% coverage and then sneak in an endorsement for 75% coverage if the loss is due to hail. That is when you need 100% reimbursement the most. If you carry 100% coverage, check your policy to see if you have the same coverage for hail damage. It is sometimes referred to as the Wind-Hail Percentage Revised endorsement.
With GM and Chrysler in bankruptcy, what changes are you seeing in the insurance market?
Not too many. There are still plenty of insurers aggressively writing dealerships. We have seen one carrier refuse to write Chrysler dealers but continue to write GM dealers. The biggest change is a greater emphasis on financial statement underwriting and scrutiny. That is discussed in greater detail below.
All of a sudden every insurance company is demanding financial statements, what should I do?
That is true. Not long ago many insurers were requesting financial statements, now they’re demanding them. Some carriers are refusing to quote if they do not get dealer statements and then some will refuse to quote if they don’t like what they see. Understandably, many dealers are reluctant to give out dealer statements in the challenging times. There isn’t an easy answer here. If you want the quotes you may have to give out dealer statements. If you are uncomfortable giving your statements to the agent, you can usually send them directly to the underwriter. If it makes you more comfortable, ask the insurer to provide you with a signed confidentiality agreement in exchange for your dealer statement.
Some insurers will agree to quote if you are willing to give the winning bidder a copy of your statements. Be proactive and address any financial statement anomalies before you are asked because otherwise, you may be declined without the opportunity to explain.
The look and make up of our dealership operation is changing dramatically over the next couple of months but that is also when my insurance renews. Should I wait to go out to bid until all the changes are completed?
No, by then it will be too late. Waiting until the last minute to ask for bids usually creates a poor outcome. You are far better off to begin your bid process 90 days prior to renewal and make adjustments as you need to. Think of it as saving your place in the underwriting line.
