I want to start by again thanking those readers who have sent in their insurance and risk management questions since my last article. As a result I’ll stick one more time to the question and answer format.
The majority of questions since my last article have dealt with the state of the dealership insurance market and in particular the position some insurers have been taking with Chrysler and GM dealers since their respective bankruptcies. The questions have come not only from dealers but from associations and other magazines such as the Insurance Journal and Automotive News.
The State of the Dealership Insurance Market.
Surprisingly, the general state of the dealership insurance market is quite healthy and vigorous. At the beginning of the year we saw some dealership insurers try to push prices higher in hopes the rest of the competition might see it as an opportunity to follow suit. It didn’t happen. Prices and coverages for the most part have remained competitive in most parts of the country. Property coverage near the gulf and east coasts remains challenging but we are even seeing some slight improvement there.
In addition, we have seen a few more insurers enter the market. Mainly these are being offered by independent agent/broker companies. Therefore it continues to serve the dealer well to take bids each and every year. Traditionally, about 25% of our clients will change carriers after an insurance bid process. In many cases we see the incumbent carriers drop their prices to compete with the other bidders. During the past year we have had many more of our clients change carriers to take advantage of better pricing and coverage. In some months over 50% of our clients have switched carriers. It pays to play.
As soon as Chrysler filed for bankruptcy and began to balk at maintaining responsibility for products liability claims, the dealership insurance industry got queasy. The policies were never priced in a way that anticipated covering dealerships for products liability that should ultimately be the manufacturers’ responsibility. Early on one major insurer stopped writing Chrysler dealers but we understand they have now begun offering coverage to Chrysler dealers who meet their underwriting standards. The rest of the marketplace seems to be taking a more wait and see approach. So at the time of this writing we know of no insurers who are not willing to consider Chrysler dealers. Since GM did continue to honor their products liability claims after bankruptcy, this was never a problem for GM dealers.
My manufacturer is dropping coverage for daily rental vehicles. What are my options?
Traditionally, garage policies have covered the liability related to daily rentals for your garage customers when the rental is used as a replacement car while the customer’s vehicle is in your shop for service. These same policies specifically exclude coverage for non-customers or walk-up rental customers. In many cases dealers will partner with a franchised rental company such as Enterprise so they can get coverage for a retail auto rental side business.
The cost to insure a walk-up daily rental business can be quite high and only a few insurers will offer the coverage. In many cases the insurer will require you to maintain separate fleets of cars for garage customers (no additional charge) and daily rental customers (an extra charge). Of course maintaining two fleets is cumbersome and often inefficient. You also run the risk that your employee puts a daily rental customer in a garage customer fleet car thus voiding any liability coverage for you. That is why some insurers will charge you for your entire rental fleet even if many of the cars are used for garage customers. So if you are not willing to partner with a franchise rental agency, the only way to keep your insurance costs to a minimum is to maintain separate fleets of rental cars.
I’ve had to close one of my dealerships and the building is vacant.
Insurance companies hate vacant buildings. In most cases your policy will either exclude coverage for vacant (as defined by the policy) building or severely limit coverage. The cost to properly insure a vacant building can be very high. The reasons for this are obvious. All sorts of bad things seem to happen to vacant buildings and when something like a fire, burst pipes or vandalism does occur there is no one around to mitigate the damage or contact authorities. Do not assume that just because a vacant building is listed on the policy that there will be coverage at the time of loss unless the building is specifically designated as vacant with the proper coverage. If at all possible, it is best that you maintain some type of activity in the building such as using the service bays or maintaining an office. Check with your insurance company to be certain you meet the definition of an occupied building, especially if you are going to use the building for storage alone.
Drive Other Car Coverage…What is it and who needs it?
Should I buy separate coverage for my children?
In a nutshell Drive Other Car (commonly referred to as DOC) coverage is an extension of the garage policy that provides the coverage and benefits of a personal auto policy to those people listed under DOC coverage. Usually the coverage is limited to the dealer and his/her family members in addition to partners and officers listed on the policy. Sometimes key employees like a GM or CFO who has a demo may also be included. It is not necessary to provide DOC coverage to anyone who also has a personal auto policy for another vehicle in their household. Often DOC designees are provided higher uninsured motorist coverage limits than those on the rest of the garage policy. In most cases spouses and dependent children are also covered. However, it is worth asking the question as it relates to the children.
Both youthful and elderly DOC drivers are more heavily scrutinized by insurers for all the obvious reasons. In particular, youthful drivers with a record may be excluded from coverage. It that case buying the youthful driver their own coverage may be your only option. From a risk management perspective the youthful drivers present a significant additional risk with little or no premium attached. A loss caused a youthful driver on your policy is still a loss on your record and may affect your premiums for years to come.
