ISO Products Perspective
Auto Dealers Program: From evolution to solution
Completing the separation of "service stations" from auto dealers
By Andrew Blancher
The very notion of a full-service gas station is quaint and quickly becoming a relic of yesteryear. Sure, it's been decades since attendants eagerly checked your oil, wiped your windows, and provided service with a smile. But other, more profound changes have been afoot that have altered the auto service industry and, as a result, the insurance market that services the approximately 120,000 stations across the United States.
It's rare to find a gas station or "filling station" in the purest sense, that dispenses only gasoline and diesel fuel and perhaps offers oil and wiper fluid. Modern gas stations, including those with repair shops, regularly sell car parts, packaged and prepared food items, tobacco products, and beverages (including beer in some states). Some even integrate sit-down restaurants, while others offer car washes. Many of the exposures associated with such activities are incidental or completely unrelated to the use of a vehicle and thus may likely be considered beyond the realm of conventional commercial auto insurance.
While these businesses offer a wide array of products and services and present a multitude of exposures, they have historically all been classified as "auto service operations" within the ISO Commercial Auto Garage Program. Such auto service operations included repair shops, service stations, storage garages, public parking places, trailer dealers, and tow truck operators.
Two broad categories of risk classifications were traditionally eligible under the ISO Garage Program—the previously described auto service operations as well as auto dealers. The latter consists of franchised and non-franchised operations, which sell various motorized vehicles to the public. For decades, the wide spectrum of risks encompassed in either of these two categories could be written using the same coverage form as well as based on similar rates or loss costs. In 2002, this began to change.
Specifically, in late 2002, ISO removed the eligibility of auto service operations (except for trailer dealers) from its Commercial Auto-based Garage Program, marking a watershed in the history of the ISO Garage Program. Our research revealed that auto service operations presented predominantly general liability type exposures—mainly premises/operations. In other words, the biggest slice of the "risk pie" came from the premises/operation exposure in addition to "product/completed operations" that was also present, particularly for repair facilities. As a result, the slice of risk pie related to traditional automobile exposures was small and getting smaller over time.
ISO made the decision to jettison the auto service operations from the Garage Program, generally recognizing that market developments could have otherwise continued to place an ever-increasing basket of predominantly general liability type exposures into the commercial auto program. Such developments had the potential to present new and greater challenges for commercial auto underwriters and claims staff.
So, under what program could such gas stations, repair shops, and parking places get their insurance? Many of these classes (with the exception of trailer dealers) were already eligible under ISO's CGL program. In addition, many auto service operations were also eligible for ISO's new Market Segments Program—Auto Service Risks Section. These risks could not only be accommodated in such programs, but writing these classes under a CGL or Market Segments program offered the benefit of promoting greater uniformity and consistency in covering risks that contained principally premises/operations exposures.
In addition, ISO's Business Auto Coverage Form remained available for the off-premises, "over-the-road" liability exposures for both owned and non-owned autos related to auto service operations. Various configurations of garagekeepers coverage could be added via endorsement to the Business Auto Coverage Form to address physical damage of customers' autos. And vehicles that are owned or held for sale by auto service operations could be addressed within the Business Auto Coverage Form or by endorsement, respectively.
In 2006, with auto service classes no longer eligible, ISO modified the Garage Coverage Form to remove numerous direct and indirect references to such risks. As such, auto dealers were the only classes accommodated within the Garage Coverage Form's provisions.
The final chapter in the evolution of the ISO Garage Program will essentially be written in October of this year. That is when the new ISO Auto Dealers Program replaces our Garage Program in the majority of jurisdictions.
ISO has developed the comprehensive Auto Dealers Program from the ground up to embrace specific and unique insurance needs of auto dealers. Featuring a new Acts, Errors, and Omissions coverage section, the Auto Dealers Coverage Form packages the most commonly requested coverages into a consolidated insurance product. By incorporating critical coverage components such as personal and advertising injury and locations and operations medical payments into the coverage form, the number of endorsements that may be necessary to attach to the policy has been minimized.
Twenty-six new endorsements, including a Customer Complaint Legal Defense Coverage endorsement, will allow for further tailoring of coverage to suit the needs of a wide variety of risks from small used-car dealers to large franchised operations.
ISO is also introducing numerous auto dealer manual rules to assist with risk classification and rating, thus providing a virtual turnkey solution for insurers interested in entering the dynamic auto dealer market or increasing their existing presence.
Andrew Blancher is senior manager, Commercial Auto, at ISO, a member of Verisk Insurance Solutions group at Verisk Analytics.