According to Marvin E. McDougal, president of Automobile Risk Management & Insurance Services, Inc., the insurance marketplace for new car and truck dealerships is dominated by direct writers such as Zurich Direct, Sentry Select, Federated Mutual, American Hardware, and Harco. He notes that there are still many markets available for retail agents, including Argonaut, AIU, Scottsdale, Travelers, Liberty Mutual, Harleysville, Motorists Mutual, and Peerless.
However, the used auto dealership marketplace has a number of different players. Nathan Holt, transportation manager at Burns & Wilcox, mentions Burlington, Colony, Essex, National Fire & Marine, and Scottsdale. Douglas Setters, president of Creative Underwriters Corp., adds Heritage and Northfield.
Coverage is written on both an admitted and non-admitted basis. New car dealership liability coverage tends to be more in the admitted market, according to Mr. McDougal, but dealers' physical damage coverage is often written in non-admitted markets. Vince Duvall, transportation underwriter at Roush Insurance Services, Inc., says that many states require that liability coverage be written in the admitted market. However, states such as Indiana that permit use of non-admitted paper offer flexibility for hard-to-place risks.
Coverages offered and desired also vary between new and used car dealerships. According to Mr. Duvall, many small operations only want what is required to satisfy licensing, landlord and/or floor plan lienholder requirements. Dorothy Douglas, senior underwriter at London American Risk Specialists, Inc., explains that, while they are willing to offer additional coverage, “due to the high cost of coverage, we are seldom requested to do so. We write a large number of small, family-owned shops, and keeping their insurance costs down is a major concern.”
According to Mr. Setters, typical coverages are garage liability, dealers’ physical damage, garagekeepers legal, medical payments, scheduled vehicles, and uninsured/underinsured motorists.
Additional coverages such as building, business income, business personal property, and inland marine coverages may be offered in order to provide a package policy. However, as Mr. McDougal points out, “In general, coverages and limits offered to new car and truck dealerships are more generous than those offered to used car and truck dealerships.”
There are numerous optional coverages to consider but not all are available to used car dealers. Our experts agreed that broadened garage coverage and false pretense coverage on inventory are important. In addition, Federal Odometer, Title Errors & Omissions, and Truth in Lending liability are other important coverages to consider.
According to Ms. Douglas, the two major loss exposures for dealerships are theft and liability from customer test-drives. Mr. Duvall explains that the customer test drive problem is that, “Customers frequently drive vehicles they are unfamiliar with and are busy familiarizing themselves with them as they drive. The situation is compounded when dealership personnel allow unaccompanied test drives.”
Mr. Holt considers auto liability losses, completed operations from service and repair work, damage to customers’ cars while in the insured’s care, custody and control, and physical damage to the dealer’s inventory held for sale as major loss exposures that must be evaluated.
One key element everyone agreed on for underwriting is the owner's driving record. Another is the driving record of anyone who has access to a vehicle.
The type of vehicles sold determine many insurance companies’ appetites. According to Ms. Douglas, “Dealers that specialize in high-value or exotic auto sales are challenging to insure and are usually placed with niche markets.”
Time in business and loss experience are very important. Mr. Duvall points out, “Some dealers have difficulty getting coverage placed due to a number of small losses that could have been prevented with the slightest amount of caution on their part.” He observes that they end up in the E&S market with higher liability and physical damage deductibles.
Mr. Setters brings up underwriting inventory physical damage coverage. Theft is a major problem according to all of our experts and Mr. Setters explains that key control and lot protection are two areas that are examined closely. Geographic concerns apply to this particular coverage because hail and windstorm are major contributors to losses. In addition, according to Ms. Douglas, coverage for dealers located within 100 miles of the Mexican border can be very difficult to place due to concerns over theft.
Exclusions are very common in this marketplace, as Mr. Duvall explains. “Sometimes the only way to place a risk is to have exclusions that may be uncomfortable to the insured. The key element is communication between the retail agent and the insured so the burden of acceptance falls on the insured to determine what portion of the risk to bear in order to start or remain in business.”
All of our experts agreed that exclusions are part of the process but that it is very important to review any unusual exclusions to avoid problems. Mr. Holt was particularly concerned with the unaccompanied test drive exclusion. Mr. Setters warned that whenever an excluded driver endorsement is attached, it must be signed by the insured and the owner should not be an excluded driver under any circumstances.
Comments about pricing varied significantly among our experts because they represent different segments in the marketplace. The overall comment was a soft but stable market but one comment was that it is flat and another was seeing price reductions of 20-25%.
The biggest impact on the industry is the economy. According to Mr. Holt, it has had a negative impact on many used car dealerships. “We are seeing a lot of dealers carry lower liability limits and smaller inventories of vehicles as they try to reduce their costs to remain in business.”
Mr. Duvall agrees that changes on the horizon will challenge everyone and he provides us with this final thought: “Just like the auto industry itself, insuring these risks will present different challenges until the economy levels out a little. The resistance and inability of the public to buy new vehicles at this time will increase the demand for clean used cars. That appears to be creating a new demand from applicants applying for insurance to obtain a retail used car license. In states that have such provisions, demand for wholesale dealer licenses is also increasing and those applicants will need retail agents willing to go the extra mile to find coverage.”
|
