How to better manage the insurance-buying process for your Independent Auto Dealership
About this guide The process of purchasing insurance may not be one of your favorite things to do while managing your Independent Auto Dealership. But with proper guidance and some key considerations to be aware of, you can be in a much better position to determine what type of coverage will best meet the needs of your business. This guide is designed to provide an overview of how to: Determine your true cost of insurance Identify key insurance coverage areas Incorporate loss prevention tactics Better understand premium determination and payment plans 2
Your true cost of insurance When looking at your insurance renewal premium for the upcoming policy year, it s not wise to only consider the premium amount. A low-cost premium could actually cost you far more than you ever imagined! Each insurance company determines their premium price based on several factors: Loss experience Insurance companies determine premiums based on loss experience by class of business - both on a nationwide basis and on a state-by-state basis. Insurance companies may make decisions to raise or hold prices, and stay in or get out of markets based on their current loss experience. Know your dealership s loss experience and keep current with your claims activity. Your loss history is a big factor that the insurance underwriter uses to price your account. Pricing may be affected by other factors in addition to your loss experience, and pricing levels are set accordingly. Business practices The better your business practices are documented, the better position your dealership will be in when it comes to pricing your account. Your documentation may lead to improved loss history, and more favorable pricing when an underwriter reviews your business. Amount of insurance you need to purchase Things to consider include your building limits (if you own the building), your vehicle and parts inventories, equipment and tools and the number of employees you have. Deductibles you pay There is a trend in accepting higher deductibles to control cost and better manage losses. Consider the highest deductible you are willing to accept to help significantly lower premium costs. But remember the amount is something you must be willing and able to pay at the time a loss occurs. You should also be aware of the number of deductibles that could apply to a loss if it involves more than one auto or item of property. Time spent Oftentimes an area that is overlooked is the time business owners spend on insurance-related issues (losses, claims, reporting, renewal, coverage additions, etc.) Time is money, and the more efficient and prepared you are in managing your insurance, the better. Do your homework on the insurance company and agent Insurance representatives come in all shapes and sizes: independent agent, captive agent, direct employee of an insurance company, and others. Know which company(ies) the representatives work with and how they service their accounts. It s important to be aware of the financial strength of the insurance carrier: review their A.M. Best ratings for the past several years. Determine if the company is a generalist or more of a specialist in the automotive industry by reviewing coverage and policy terms to see if they offer customized coverage and specialized services geared toward your dealership business. It s always good to get references from any peers or friends you have in the industry in addition to asking for references from the representative themselves. Sell the quality of your dealership You have the choice of being prepared for or dreading your next appointment with an insurance representative. Help the representative see how great your store is by: Providing clear and accurate information Describing improvements and changes made in the recent past to prevent claims Sharing examples of lessons learned from past claims and actions taken to prevent a reoccurrence Showing an interest in any suggestions the insurance company can offer to help reduce claims Submitting information electronically, when possible, to track communications and improve readability Losses not covered There may be some categories of loss for which you choose not to purchase insurance coverage. Consult with your insurance representative on areas that may be appropriate based upon your dealership s needs and loss experience. 3
Information insurance companies and representatives need In order to get the most accurate insurance proposal for your Independent Auto Dealership, detailed information is needed. The more information that you can provide the better as this will help the insurance representative and the underwriter develop a more customized insurance policy and help you avoid gaps and omissions in coverage. Types of information and documentation include: Dealership financial statement, both current and year-end is best, but at least the most recent year-end Employee list, including Drivers License numbers, birthdates, job titles, demonstrator/furnished vehicles (if applicable), and work location Statement of replacement values for parts and accessories, furniture, equipment, computer equipment, software, leasehold improvements, employee tools, leased equipment, signs, by location Copies of contracts, leases, customer loaner agreements, employment agreements, hold harmless agreements, demo agreements, etc. Building measurements, replacement values, and lot size Current loss runs, at least 3-4 years, for all policies Copies of employee handbook, safety plan, flood evacuation plan, emergency plan, etc. Expiring policy Key coverage areas to review Commercial auto You have employees and customers driving your vehicles every day. You may even have drivers you don t know driving your vehicles. Auto Liability is the biggest loss exposure facing your dealership, so ensuring you have adequate coverage and policy limits is important Which of your drivers should be covered by your insurance policy and which should be excluded? All drivers motor vehicle records will be scrutinized during the underwriting process, and drivers with poor driving records will affect coverage and premiums. There are plenty of loss prevewntion strategies that you can employ to decrease your auto liability exposure, including limiting employee access afterhours, finetuning your hiring practices, conducting annual MVRs on drivers, as well as improving your test drive procedures, accident investigation and employee training. Garage liability This coverage applies primarily to dealerships that perform automotive maintenance and repair service as part of their business - typically 10 15 percent of Independent Auto Dealerships nationwide. Coverages within this part of a policy may include: Bodily Injury - Actual or alleged injury caused by your work or product. Property Damage - Actual or alleged damage to the property of others. Premises/Operations - Injury suffered on your property - slips, falls, or trips as a result of your business operations. Products/Completed Operations Liability - Coverage for property damage resulting from services provided, products sold or work performed on customer autos. Personal Injury - False arrest, libel, slander, wrongful detention, wrongful possession, mental injury and mental anguish. Contractual Liability - Hold Harmless agreements and other types of contracts. Employee Benefits - Errors or omissions in the administration of a benefit program - Health, Life, Dental, vision, pension, 401k, etc. (Failure to enroll, violation of COBRA.) Advertising Injury - Copyright violation - use of slogan or campaign that is owned by others. Fellow Employee - Even though workers compensation considered sole remedy, some states allow actions against negligent fellow employees. Customer Complaint Defense - Customer dissatisfaction suits can be defended even though there has been no bodily injury or property damage. Discrimination and Employment-related Practices: Discrimination: such as unequal treatment that is a violation of the Civil Rights Act; hostile work environment; EEOC certification; sexual harassment; reverse discrimination; etc. Third Party Discrimination: discrimination against nonemployees such as customers or vendors. Wrongful Employment Practices: such as wrongful termination; wrongful discipline; wrongful denial of seniority; retaliation, etc. 4
Many types of deductibles are available and can be based on a per-auto, per-occurrence or per-peril basis. Additionally, there are usually a variety of deductible amounts from which to choose. The best loss prevention measures relate to: Property Buildings are the major item covered under the Property section of your dealership insurance policy but not the only one. Oftentimes independent (non-franchised) dealership operations don t own their building(s). If the building is leased, the landlord likely insures the building. This can be verified by reviewing the lease agreement. If the building is owned by you, review the policy limits and make sure all owned buildings are listed on your policy correctly. There are several different levels of building coverage that you should explore from guaranteed replacement to actual cash value. The age and condition of the structure will determine the level of coverage for which the building qualifies. It is your responsibility to determine the replacement values of your insured property. The insurance company may assist you with an estimate but ultimately you are responsible to insure everything to its proper values to avoid penalties or under insurance situations. Ensure your limits are sufficient to replace all of your property including diagnostic equipment, tools, computers, software, valuable papers, signs, desks, phones and supplies. Auto Inventory Physical Damage (AIPD) The policy limits for Auto Inventory Physical Damage should be based on the average monthly value of your dealership s vehicle inventory, which include cars and trucks, consigned autos, demos and company autos. The perils addressed by this coverage include: Comprehensive Collision Extended Theft (also known as False Pretense ) Wind and Hail Flood Theft Test drive procedures: Determine a pre-set test drive route that includes right hand turns only. Make sure to obtain a copy of the customer s driver s license and insurance coverage prior to the test drive, and have a dealership salesperson always go along. Create a test drive log to document all test drives. Demo policy: If you provide demos/furnished autos to employees make sure all drivers have signed a demo agreement. Be very selective on who you provide demo cars to, as this creates additional expense and exposure. Each employee furnished a demo increases your liability and physical damage premiums and odds of an accident. Key control procedures: Make sure you have a system in place that includes some type of key tracks and logs. Lock boxes on cars are not a recommended option. Dealer plate access control systems: Make sure to have controls in place to secure dealer plates and control access to them. Commercial umbrella Umbrella coverage may be the most important piece of your entire insurance package. This adds an additional layer of coverage over underlying policies for: Bodily Injury and Property Damage Auto and Premises Liability Products and Completed Operations Things to consider with a Commercial Umbrella policy include: Purchasing a limit that helps you sleep at night. What is the judicial climate in your area? Are high jury awards common? Imagining a worst case scenario to determine a limit that would be enough to cover multiple injured parties from one accident. The limit is per accident, no matter how many people are injured and how many lawyers they hire. Does the limit include defense expenses or are they unlimited? Understanding the policy exclusions 5
Know how premium is determined and what payment plans are available As a consumer of insurance, this is one area that your diligence will be a benefit. Understand the types of premium payment plans that are available, such as plans that require a percentage down, a balance over several months, monthly payment plan, and plans that require the regular completion of reporting forms. If you need to make changes to your insurance program in the mid-term of your policy period, review the endorsements and be aware of how changes may impact your billing plan. Make sure to evaluate your current policy and any proposal to determine if the premium base is accurate. The premium base is usually related to your sales, insured values and number of employees. Audits often result in year-end premium adjustments based upon expiring premium policy base. Accuracy in this area will help you avoid audit surprises in the future. In North America, Zurich is a leading commercial propertycasualty insurance provider serving the global corporate, large corporate, middle market, specialties and programs sectors through the individual member companies of Zurich in North America, including Zurich American Insurance Company. Life insurance and disability coverage issued in the United States in all states except New York is issued by Zurich American Life Insurance Company, an Illinois domestic life insurance company. In New York, life insurance and disability coverage is issued by Zurich American Life Insurance Company of New York, a New York domestic life insurance company. For more information about the products and services it offers and people Zurich employs around the world go to ww.zurichna.com. 2012 marked Zurich s 100- year anniversary of insuring America and the success of its customers, shareholders and employees. Zurich looks forward to providing for your dealership insurance needs! After more than 90 years serving the automotive industry, Zurich continues to grow its product line and remains true to its founding principles. Customer-created and customerdriven, the company specializes in insurance for automotive dealers with a history and experience that parallels the beginning and growth of the auto industry. For more information on Zurich s insurance solutions for Independent Auto Dealers, visit www.zurichna.com/automotive or call 800-840-8842, ext. 7449. The information in this publication was compiled from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult with your own attorneys when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy. A1-112003599-A (07/14) 112003599 Zurich 1400 American Lane, Schaumburg, Illinois 60196-1056 800 382 2150 www.zurichna.com 2014 Zurich American Insurance Company 6