The good news for dealers today is there is a vigorous dealership insurance marketplace. The challenging news is the landscape is changing and dealers will need to take a nimble and aggressive approach to make certain your dealership has the right coverage at the best possible price.
The dealership insurance landscape
The dealership insurance landscape is changing quickly and in unusual ways. Normally insurance carriers are either entering the dealership marketplace together or leaving together, right now we are seeing both. Earlier this year we saw American Hardware sell most of its dealer book of business to Federated. As of this writing we now understand that HARCO will no longer write any new car dealer business in most states, but will renew what they have on the books. They are still writing heavy truck dealerships. It is anyone’s guess how aggressively they will try to retain the auto dealer business they have. My guess is they will not be very aggressive. Dealers insured with HARCO will need to make sure they have as many alternative quotes as possible and look seriously at their options.
With that said, there are some new carriers entering the marketplace on both a regional and national basis. It is very peculiar to see insurers both entering and exiting the dealer space at the same time. While there have been a few regional programs and carriers enter the auto dealer insurance market, the two most notable national programs are, Fairmont Specialty (Crum and Forester Insurance) and SeaFire (Chubb Insurance Group). Fairmont Specialty is headed by former Sentry executives while SeaFire is headed by former Universal/Zurich executives. Both programs are offered by select independent agents and brokers.
Every dealer insurance program has its coverage pros and cons, some coverage details may be more important to one dealer than another. For these new carriers to earn a significant market share, they are going to have to be very price competitive for dealers to move their business. Competition from these new carriers could have a positive price effect on the rest of the market, but only for the dealer who aggressively bids their coverage. Without any market pressure, insurers will try to nudge premiums up.
In normal markets, we have found that about 30% of our clients that utilize the Austin Consulting Group insurance bid process change carriers. In the other cases, the incumbent carrier steps up to the plate with market competitive pricing. During the past six months we have seen a significant increase to 40% of our clients changing carriers. That says almost half of our dealer clients have found better deals with other carriers that their incumbent carrier refused to match. It pays to get competitive bids and force all insurers to be as competitive as possible every year.
The dealer’s physical damage landscape
Again, much is changing and some new opportunities may exist for dealers who would like to consider flooring sources that do not provide an accompanying insurance program. Before dealers in the mid-west hail belt get too excited, manufacturer programs in these areas still often offer the best wind/hail and aggregate deductible structures. For dealers outside these very hail prone areas, you have other options. Programs like CorePointe (formerly Chrysler), All Risk, Allianz and MIC can offer competitive dealer’s physical damage programs for most any franchise. Keep in mind that often these carriers are more interested in your entire inventory rather than just your used vehicles.
Be nimble and willing to adjust your coverage
Deductibles: Just because the deductibles you chose last year or the year before were cost effective, does not mean that they will always be the most cost effective. Insurance companies, generally speaking, like cash flow, which means they often do not like to give up an appropriate amount premium for the risk you take. Before deciding on a deductible or retention structure, consider your past experience. If you have had losses and have done nothing to improve you loss control, do not expect your loses to magically get better.
Also, different insurance companies look at deductibles differently. One carrier may be more willing to give larger deductible credits than another. So let the carriers offer you their most cost effective deductible structure rather than demanding one that another carrier used in past years. You might even end up with both lower premiums and lower deductibles.
Umbrella limits: The old adage says that the more insurance you have, the more you will be sued for. I don’t know if that is true, but in this market it does make sense to consider your umbrella limits. Some carriers have the ability to write only a certain amount of coverage and then have to go out for reinsurance for the additional piece. Sometimes the reinsured part becomes ridiculously expensive. Let’s say you want a $10,000,000 umbrella but the insurer can only write $8,000,000 in-house. Don’t be surprised to find the $10,0000,000 umbrella costs much more proportionally than an $8,000,000 umbrella. The outrageous charge for the top $2,000,000 gets passed on to you. So ask for the umbrella limits you want, but also ask for the insurance company’s most cost effective limit. You may save significant premium dollars for only slightly lower limits.