It’s peculiar that on the day I sit to write this insurance article, America is hit with a swarm of medium sized earthquakes in places where quakes are rarely reported. Plus a potentially large hurricane (Irene) has set sights on the southeast coast. I woke this morning to news stories of a 5.9 earthquake in of all places, Trinidad, CO, just about 175 south of my home in Denver. Some minor damage to buildings and grocery store inventory tumbling into the isles seemed to be the extent of the problems for Colorado. Other quakes hit D.C. and rattled other towns in the eastern U.S.
It does make you think about how important the right coverage is for your dealership and why it is important to consider your policy details. You may even be asking if you have earthquake coverage. The answer is probably “No” unless you have a specific earthquake policy or coverage extension. Do you need it? Who knows where an earthquake will strike and the coverage can be fairly expensive. Interestingly, the largest American quakes on record have been in Alaska. We all know about California quakes, but did you know the biggest quakes in the continental U.S. but outside of California shook up Missouri? Yes, three of them between 1811 and 1812 racked up impressive 7.7 (2) and 7.5 magnitudes. The San Francisco quake of 1906 was only slightly bigger, 7.8.
OK, enough earthquake talk, let’s get onto some scintillating dealership insurance and risk management issues.
Increased deductibles equal increased premiums
The dealership insurance market continues to be vigorous with no new insurers entering or exiting the marketplace in the past couple of months. The vigorous market, much to the dismay of many insurers, is helping to hold the line on prices for those dealers who aggressively bid their insurance program annually. We are however, seeing a few main line dealership carriers increasing deductibles instead of increasing premiums. Increased deductibles are easier to hide in proposals, especially to buyers interested only in the bottom line. Less coverage for the same price is effectively a premium increase.
We never want to think we will have losses. That kind of thinking makes increasing deductibles without lowering premiums seem more palatable. It is not uncommon for some carriers to hide things like property damage deductibles in proposals with terms like “see policy.” Of course they have not issued a policy… so how can you “see policy?” Deductibles incurred under your policy add to your insurance expense, just like increased premiums.
Don’t misunderstand what I’m saying. Increasing deductibles can be a very effective risk management tool, assuming you are getting a premium credit commensurate with the additional risk you are accepting. What I’m writing about today are insurance companies who are choosing to not offer competitive premiums at standard deductibles, but instead offer what appear to be competitive premiums until you realize the deductible structure they are proposing is much higher than your other quotes. It’s the same…but it’s not! Then they try to convince you that this risk shifting is somehow in your best interest.
Another little trick we are seeing in this same vein is insurers selling lower than industry standard limits for coverages such as errors and omissions and employment related practices. The argument is usually that their claims management is so superior that you don’t need higher limits. I would argue the inverse, if their claims management is so superior they should have no trouble offering higher limits at a reduced cost. The bottom line; should you have a loss that exceeds these low limits, it is you left holding the bag, full of superior claims management.
How “per location” deductibles increase your loss costs
This topic was brought up last year but I wanted to revisit it since we are seeing more auto physical damage policies being issued in a way that could increase your deductible cost significantly. Back in the “good old days” auto inventory aggregate deductibles were tied to an event/occurrence. Many insurers still offer occurrence coverage, but we are seeing a move to per location deductibles, especially in hail prone areas. With a “per occurrence” deductible, if you have three dealerships in the same general area all hit by one hail storm, you had one aggregate deductible. Per location deductibles are tied to each “location” listed on the policy rather than an event. Example: you have two dealerships across the street from each other hit by a hail storm with a $50,000 aggregate deductible per location (dealers in the hail belt…use a bigger aggregate, if you can get an aggregate at all). Instead of paying out $50,000 for the storm, you will now pay out $100,000 or $50,000 per location.
Insurers look at locations differently than you do. Let’s assume a dealer has three dealerships that cover an entire city block. While the property is contiguous, each of the three-dealership buildings and your pre-owned operation face different streets and thus has different address. Vehicles are stored in various locations throughout the entire complex. Personally, I would consider this one location, but I’m not your insurer. Often in policies with per location aggregate deductibles, each address will have its own aggregate deductible, in this example quadrupling your deductible cost. Take a look at your policy. If each location is listed with its own aggregate deductible, you may well have a much larger deductible expense after that big storm, than you ever expected.
As we have said many times, there are devils in the details of your polices that may never show their face until you have a claim. It pays to scrutinize your policy and ask questions. Remember, if you wait for your renewal to decide on your risk management strategy, you’ve waited too long to find meaningful alternatives.