Since my article in the February 2012 issue of Dealer magazine “A Firming Insurance Market for 2012,” the evidence of a tightening insurance market and the resulting rising rates keep mounting. An April article in Business Insurance stated,
“Travelers, a Dow component, said on Thursday that commercial insurance rates rose an average 8% in the quarter. Rates rose in other lines as well, including 4% in auto and 10% in homeowners’ policies. The company has been among the most aggressive in the industry about raising rates in recent months, after a years-long period of excess capital forced companies to compete on price. Analysts have been watching closely to see whether it could maintain momentum, which bodes well for other insurers.”
Certainly, Travelers is not alone in this attempt to push rates higher. Higher premiums cut directly into the dealerships bottom line.
Of course, creating competition by annually bidding coverage is the only way to be certain that you are getting the best deal in the marketplace. It is also the only way to put pressure on your insurer to minimize any proposed rate increase and show you are serious about holding the line on expenses and profit.
An effective insurance bid process is not as simple as calling a couple of the “usual suspects” and requesting quotes. Here are six guidelines for a successful insurance bid process.
1. Cast a wide net – In this volatile market, it pays to make sure you have all the available dealership insurers bidding. This of course means more work for you, but it may pay off in spades. More markets means more agents and more bids to sort through. While the direct writers like Sentry, Federated and Zurich represent only their own programs an independent agent or broker may represent two or three. Often it is best not to let one agent control more than one or two garage markets. Why? Because the more companies that agent controls the less control you have over the quotes presented. More agents usually result in more quotes.
2. Apples to apples – Comparing coverages on an “apples to apples” basis is challenging. All carriers offer policy forms with the same names but there can be subtle differences in the policy language that can reduce coverage. That said, you should be able to compare pricing on an apples to apples basis with a little effort. Just because you tell insurers the exposure variables to use doesn’t mean they used those numbers. A few carriers are notorious for using the previous year’s average employee count and inventory levels regardless of the numbers you provide. If your dealership is in a growth cycle this means the renewal premiums will be underestimated and erroneously lower than your other bidders. This may be of particular concern to dealers with inventories reduced last year by the damage from the Japanese tsunami. Ultimately you will pay for your real exposure so a “low-ball” is of no benefit.
If the bidder will require you to fill out a monthly reporting form, use that form with your exposure estimates to check to see that the monthly premium is 1/12th of the annual premium quoted. If there is not a reporting form, have the agent sign a document showing your exposure estimates and guarantee they were used to develop any variable premium.
3. Look for new exclusions and deductible changes – While raising premiums will increase the insurance company’s bottom line, so will reducing coverage and increasing your deductibles. Upon renewal, agents will sometimes gloss over any changes to which you may object. Do not assume that because the agent says there are no changes to the renewal that it is in fact, true. We’ve even seen situations where the underwriter added a flood exclusion to the vehicle inventory and failed to notify the agent who in turn failed to notify the dealer. Luckily, the dealer’s CFO found the exclusion in the policy before an uninsured loss. The change was no mistake, the carrier would not remove the exclusion and with our help, the dealer changed carriers.
4. Negotiate…negotiate – Successful negotiation comes from a position of strength. The only way you gain strength in the insurance transaction is to have other alternatives. Blind poker and acting angry or offended by increased rates is rarely an effective strategy. You need options and to get those options you must begin your bid process well before you know the renewal your insurer will offer. Everything is negotiable. Be prepared to negotiate not only premiums but also deductibles and coverage limits.
5. Get outside the box – Your insurance life is probably easier with just one agent and insurance company but that was yesterday. Today we are seeing dealership insurance packages being broken into more parts than ever which means you should be ready to deal with more carriers and possibly more agents in order to get the best deal on the right coverage for your dealership.
6. Trust but verify – So you’ve scoured the market, received your quotes, negotiated hard and chosen your carrier(s). But do the policies you received reflect all you agreed to? All too often, the answer is, no. On average, we find between three to six mistakes on every insurance program we review. Sometimes the error is a simple typo but other errors like undisclosed exclusions create serious coverage issues. The most common errors are the result of changes agreed to during negotiation not making it onto the policy. Often these are simple oversights and can be easily remedied but they should be addressed before they create a claim problem.
Competition is a wonderful tool to keep your premiums in check. Really, it’s the only tool. If you were the only dealer in town, would you feel the need to be price competitive? Of course not. The same is true for insurance. Don’t let your agent/ insurer operate as if they were the only dealer in town.