Is the insurance policy sitting on your desk correct? Are all the “Is” dotted and “Ts” crossed? Did all the changes you negotiated and corrections you made actually end up in the policy?
I have reviewed hundreds of policy sets every year and find on average from three to seven mistakes in each of them. These range the gambit from simple clerical errors to serious oversights that, under the right circumstances, could cost your dealership dearly. Often these mistakes go undetected because policies go unreviewed. If there is no disputed claim there may be no reason to suspect a mistake has been made.
While the types of policy mistakes are many and varied, here are the ones we find most often. Compare your policies against this list and see what you find.
Know Yourself: Often dealerships are made up of many corporate entities, partnerships, trusts and others, all with an insurable interest. Are they all properly listed as named or additional insureds? While many policies have broad named insured definitions, it is important to have all the appropriate parties listed on the policy.
Don’t assume that your personal assets like watercraft, snowmobiles, etc. have liability coverage just because they are titled in the dealership’s name or reported in your inventory values. Policies often have liability exclusions that relate to watercraft and other toys. Ask specific questions about coverage for any assets that are not normally considered part of a dealership operation.
Vacant buildings can be particularly problematic. Storing a few obsolete items in the building and sending a porter over once a month probably is not enough to avoid the policy’s “vacancy clause.” While the wording of “vacancy clauses” can vary from policy to policy, they are usually quite specific on what percentage of the building must be in regular and customary use and how long (often 60 days) the building can remain “vacant.” Should your building be deemed vacant at the time of loss, the insurer has the right to reduce coverage and claim payments.
Know your limits: Check your building and contents limits. Do they properly reflect the replacement cost of those items? It is not uncommon to find a building worth $1,500,000 insured for $150,000, a simple typo. If you have multiple buildings, consider blanket coverage so the aggregate values are more relevant than the individual values.
Does your dealership operation include a number of buildings, maybe some small ones? They all should be listed with insurable values. Do the contents values between your buildings fluctuate or have you moved your excess parts inventory from Building A to Building B without changing the contents values to reflect the change? There are easy cost free ways to structure your policy to allow for these fluctuations, but many times these solutions are not included, leaving the dealer vulnerable for an under-insured claim plus coinsurance penalties.
Auto inventory limits can be a tricky thing. Most carriers set auto inventory limits at 125% to 150% of your expected inventory levels to deal with the normal inventory fluctuations. However, do you know what inventory level your quote was based on? Auto inventory is one area where it is very simple to low-ball a quote, and underestimating the premiums will make you ultimately pay. Some carriers offer reporting forms with rates so it is easy to plug in your expected inventory, and compare it to the quote. Others however will adjust your premiums based on your actual inventory but not show you the rates or how they calculate the premium unless you push for this information. Don’t assume your quote is based on the inventory levels you provided, it often is not.
What did you negotiate?: Negotiated points are often left off policies, especially with renewal carriers. They already have your policy ready to print and last minute changes just don’t get communicated. This is especially true with both rates and deductibles. We suggest you keep a list of all negotiated points and have your agent show each change once the policy is in your hands.
Changes in deductibles are easy to spot, but sometimes the rates that go to make up your ultimate premiums are not so easy to find. As mentioned before, some carriers are even hesitant to reveal them. That said, it is those variable rates they use to adjust your monthly premiums or at year end. Require your carrier to provide any and all variable rates and the rating basis they used to determine your premiums. This exposes low-balling, whether intentional or not.
Miscellaneous issues: So your agent says your policy was renewed without changes. Is it true? Often the answer is no! Insurers love to slip changes into their renewal policy and often these go undisclosed, even to the agent. A few of the most common are, auto inventory flood exclusions, increases in employment practices deductibles, reduction in limits for E&Os and EPLI and liability coverages that once were included in your umbrella are no longer, reducing your total coverage limits.
Geographical issues can come into play. Most business interruption policies exclude losses due to offsite power failures. This coverage is very important in the northeast and midwest where damage from snow and ice storms can cause extended power outages.
Also look out for those little housekeeping issues like the proper ERISA endorsements to keep you in compliance and making certain those detail coverages like employer’s liability are included in your umbrella.
Insurance policies are complex and the possibilities for errors are endless. These are just a few of the most common. Check your policy in detail to make certain the policy delivered provides the coverage you intended to buy.