.
The last few years have been difficult for auto dealerships. Leaders in the industry have faced continued workforce problems, chip and inventory shortages, increased gas prices, and the effects of inflation. As you try to manage the rising cost of doing business, the idea of trimming overhead costs by adjusting certain insurance coverages may be tempting — but this could lead to more financial risk instead of savings, depending on the changes you make.
By Brett Hoopingarner, director of underwriting for Sentry Insurance
In fact, insurance is often one of the most cost-effective ways you can financially protect your dealership from the emerging risks I mentioned above. One unexpected storm, fire or accident could result in significant costs beyond what you’re already facing. Instead, the start of a new year is an opportunity to step back and evaluate how your dealership’s risks have changed. That way you can update your insurance program, identify where you can control losses and still protect your dealership in a way that fits your budget.
As we head further into 2023, I’ve outlined several trends most likely to affect the industry, and what you can do to stay one step ahead.
The Effect of Inflation and Supply Chain Challenges on Property Damage
An often-overlooked result of inflation is the rise in your facility and inventory values. If the worst happens and your dealership suffers the result of theft, fire or severe weather, it will cost more to replace your inventory and rebuild facilities in today’s inflationary environment. If damage is severe, material shortages could also cause longer repair times as your business recovers,
making it difficult to pay your team, serve customers and pay ongoing expenses in the months that follow.
To help offset the effects of inflation, I often encourage dealerships to work with their insurer to update their property valuations. That way you can adjust your insurance program to account for higher repair costs and avoid underinsuring your assets if they’re damaged.
Other ways to protect your dealership include adding an inflation guard provision and adjusting the amount of business income coverage you have. An inflation guard provision allows you to set a percentage increase to your building and personal property limits throughout the term of your policy. This helps your insurance program keep pace with the rising costs of your property.
On the other hand, business income insurance can help you combat the longer repair times and interruptions following more severe property damage. If it takes months to rebuild different segments of your dealership, business income insurance can help you continue paying for overhead costs, payroll and lost profits while your dealership recovers.
The Increased Cost of Motor Vehicle Accidents
In the United States, the National Highway Traffic Safety Administration
estimates more than 3,100 people were killed and about 424,000 were injured in crashes involving a distracted driver in 2019. As distracted driving incidents become more frequent, vehicles also cost more to repair, and litigation is occurring more often in accidents involving businesses. According to recent data from The National Safety Council, medically consulted injuries in motor-vehicle incidents totaled $4.8 million in 2020, and total motor-vehicle injury costs were estimated at $473.2 billion. To address this trend, it’s imperative to have a quality risk management plan in place that outlines employee hiring, training and driving standards.
You can start protecting your dealership from accidents by thoroughly reviewing motor vehicle reports (MVRs) prior to hiring. If you put a driver who has a poor record on the road in one of your vehicles, it could create a catastrophic loss for your business if they cause an accident. In many cases, an accident involving your business and another party could lead to further liability for your dealership. If that happens, the other party’s lawyer will likely review your driving standards and whether you conducted an MVR review.
An MVR and safe driving program, when done proactively, can serve as an added layer of protection for your dealership, especially in situations where employees are on the road during test drives, transporting vehicles from auctions and driving vehicles for servicing.
When it comes to your insurance, it now costs more to repair and replace damaged vehicles. You can review your insurance program to make sure you’re covered for the full value of your vehicle in case it’s damaged. As you try to manage costs, some dealerships are turning to auto loss-sensitive programs, which allows you to lower your upfront premiums in return for taking on higher deductibles per claim. But to my point above, your insurer will typically only recommend this if you have a thorough safety program in place to reduce the risk of accidents.
Prioritize Risk Management and Reduce Your Costs
If the last few years have taught us anything, it’s that risks evolve and dealerships adjust. In addition to the trends and tips I’ve shared, my last recommendation is don’t wait. Work with your insurer, talk with your team and double down on safety. If you can do that, you can keep your dealership protected from what’s ahead and reduce your costs in 2023 and beyond.
Brett Hoopingarner is the director of underwriting for Sentry Insurance. Sentry provides property, casualty, life insurance and retirement products to the dealership industry. Learn more at sentry.com.
