THE GOOD, THE BAD AND THE UGLY
A look at motorcycle and powersports dealerships from an insurance perspective
By Mike Keese
It’s probably safe to say that the motorcycle and powersports industry has never been hotter. Sales of motorcycles and powersports products set records last year.
According to the Motorcycle Industry Council Retail Sales Report in 2020, powersports sales increased 18% and motorcycle and scooter sales increased 11%. That trend is expected to continue, even with manufacturing slowdowns.
Product lines are expanding as manufacturers come out with new toys such as electric bicycles, more powerful units, and new technology. Dealerships are doing very well and we expect it to stay that way for the foreseeable future. That’s the good news.
Motorcycle and powersports dealers continue to have losses that are coming from two main sources. The first is theft. We have seen an increase of thefts with our clients and across the industry. It is not a case of one or two guys breaking in at night and taking a motorcycle. We are seeing groups come in with a truck, back in through glass windows or doors, load up the truck with multiple motorcycles or other units and take off.
We have seen claims with 6, 8, 10, even 12 motorcycles taken in one occurrence. With that many units stolen, the dollar value of claims can quickly approach six figures.
The second type of loss involves completed operations claims. These occur when a customer brings in their motorcycle or powersport unit for service, the dealer services the unit, and returns it to the customer. At some point after the service is completed, there is an incident—this could be hours after the work is done or months later—and the customer files a claim against the dealer.
These claims can be as little as a couple of thousand dollars or as high as millions. The claims can be cut and dry, where it is easy to point to the dealer and determine it was their fault, or they can be very complex and take years to arrive at an outcome.
[I]nsurance agents need to have regular dialogue with customers about their operations and any changes that are taking place.
It can get very complex when an issue arises months after the dealer fixes a problem because there are so many variables: Did any other dealer or repair shop look at the unit since our dealer performed the work, was the issue caused by wear and tear, is it a manufacturer-related issue, or was the unit not being used properly—such as being used in unsafe conditions? Or it could be a combination of these variables?
There is not a high frequency of these claims, but due to the complexity, the defense costs can really add up. Then, if the dealer is at fault and there is bodily injury, the settlement can be very high as well. With these types of claims, bodily injury is common since we are talking about motorcycles and other powersports units.
Dealership insurance itself is a niche market, and it can be a challenging class of business to find the right market for property and casualty insurance. Finding the right market for a motorcycle and powersport dealer can be an even more daunting task. We are seeing more of a limited appetite from carriers for the motorcycle and powersports industry. Not as many insurers are willing to write this class of dealerships as will write their counterparts on the auto side.
We have seen claims with 6, 8, I0, even I2 motorcycles taken in one occurrence. With that many units stolen, the dollar value of claims can quickly approach six figures.
We have seen rates on liability go up more than 10% over the past few years for most dealers. This is in addition to the problem that everyone is seeing across all classes of business with property rates, so the motorcycle and powersports dealers have certainly seen their premiums go up recently.
As mentioned earlier, dealers are selling new products and manufacturers continue to innovate in this industry. This is great for the dealers and manufacturers, as they can find new customers with these new products or get repeat customers to buy more from them. But it is not so great for insurance.
Insurance companies do not always like change. When they see new products being rolled out, they don’t see the dollar signs that dealers might see. Rather, insurance companies look at potential claims that could happen as a result of the introduction of new products.
This doesn’t mean dealers should not embrace new products from their manufacturers. Rather, insurance agents need to have regular dialogue with customers about their operations and any changes that are taking place. There could be an exclusion on their policy for a new product that they are selling, or perhaps an underwriter might see something on the dealer’s social media post and have concerns because they see something new.
Agents can help these dealers navigate through the “bad” and the “ugly.” When doing so, here are some things to consider:
- Make sure the dealer’s technicians stay up to date on original equipment manufacturer (OEM) updates and training.
- Every unit that comes in for service needs to be checked for open recalls.
- Consider all ways that the dealer can protect their inventory from theft: alarms, cameras, blocked entrances, etc.
- When a new product is being developed by the manufacturer, consider discussing with underwriting and definitely read the policy.
Addressing the “Good, Bad and Ugly” recognizes that this is a great class of business to write and specialize in, but it does come with challenges. It is important for agents to understand the challenges that these dealers face and to understand that they should see it from the carrier’s perspective as well.
Overall, there is tremendous opportunity to write these dealers and help solve the problems they face.
Mike Keese is a garage liability specialist. Mike, along with his team at Williams and Stazzone Insurance Agency, has been specializing in dealerships for over 30 years. The team does not provide tax and/or legal advice. Direct questions to (800) 868-1235 or firstname.lastname@example.org.