Auto Dealer Insurance: Liability, Programs, Costs & More
May 17, 2021
Auto Dealer Insurance Programs are necessary and vital to car dealerships of all kinds. The basic types of dealerships include new and used car dealers. Among those types are franchises and independent owners.
The NADA Data financial profile of new-car dealerships is now published twice a year—as a full annual review at year-end and as a midyear update.
This full-year 2020 review features the many major milestones achieved by the retail auto industry during 2020, including such highlights as:
The nation's 16,623 franchised light-vehicle dealers sold 14.5 million light-duty vehicles.
Total light-vehicle dealership sales topped $980 billion.
Dealerships wrote more than 265 million repair orders, with service and parts sales totaling more than $111 billion.
In addition to franchise dealerships, there are roughly 2,000 independent light-vehicle dealerships. According to IBIS World, in 2021, the US had more than 142,000 Used Car Dealer businesses.
What is Auto Dealer Insurance & Who Needs It?
In this guide to Auto Dealer Insurance Programs, you'll find details on the individual insurance policies usually included in them. Although every situation is unique, the best auto dealer risk management practices start by considering the coverages outlined here.
Some policies in an auto dealer insurance program will include appropriate coverage to meet statutory requirements and to comply with lender demands. An Auto Dealer insurance broker will review a car dealer's insurance needs to fine-tune its program to leave no gaps or under or over-insured exposures.
Types of Auto Dealer Insurance
General liability insurance, also known as Commercial General Liability (CGL), protects dealers from various liability risks it faces from others. These include bodily injury to third parties, damage to property of others, and advertising injury claims that have claims of false advertising, copyright infringement, slander, and libel. Smaller businesses may use a Business Owners Policy (BOP) that combines general liability with commercial property damage as the bundle is usually less expensive than paying for individual policies.
Commercial property insurance also helps to pay for losses to the dealer's physical assets such as equipment, buildings, signage, inventory other than autos for sale, and third-party property. It covers costs incurred to replace stolen property and some additional costs related to theft claims. Although not inclusive, some common causes for property damage claims are fire, theft, and vandalism.
Errors & Omissions
Car dealers are in need of Errors & Omissions because they have exposure to statutory claims related to:
Truth in Lending/Leasing
Federal Odometer Statute
Title E & O
E&O insurance covers losses related to legal defense and settlement costs for charges against the dealer for negligence in adhering to a range of potential consumer legal actions claims for such things as:
Failure to file liens
Violations of leasing laws and truth-in-lending requirements
False or misleading advertising
Not disclosing known prior damage
Erroneous submissions of DMV paperwork
Failure to perform a title search
Auto dealers are a high-profile target for cybercrime due to the vast amount of sensitive data they need to operate efficiently. Cyber Liability protects dealerships from losses associated with the technological infrastructure they use to manage sensitive data. A cyber liability policy covers first-party losses for events including extortion and ransomware attacks, hacking, DDoS (distributed denial of service) attacks, data destruction, data theft, unauthorized access, security breach expenses, loss of business income, and firewall and network security attacks.
Cyber Liability Insurance for car dealers includes helping to pay loss claims in the event of breaches to third-party information when hackers gain access to customer and employee personal information.
Business Income (BI)
Business Interruption Insurance is another name for this specialty coverage designed to help pay for lost income due to perils such as fire, theft, and wind covered by the terms of the policy. When an event occurs that causes your business to stop generating income, your business income policy covers the income loss up to the policy limits. Extended Business Income is often bundled with a BI policy. In other situations, adding it requires an endorsement.
Workers' Compensation Insurance for Car Dealers is a legal requirement by law in 49 states. It protects car dealers from runaway workers comp claims that can bankrupt a business without insurance. It also covers medical expenses and lost wages of employees who suffer job-related injuries. Examples of coverage include help paying for hospital visits, medical bills, specialists, physical therapy, and prescriptions. Workers' Comp provides income protection by compensating employees with part of their lost wages while recovering and rehabilitating before rejoining the workforce.
In a hybrid fashion, Garage Liability combines a CGL policy with some aspects for commercial auto insurance. It is coverage specific to car dealers and garage businesses. It protects against losses due to bodily injury and property damage that occur to others or the property of others and are caused in garage operation accidents. It covers vehicles under maintenance or in storage by the business. These policies have restrictions that require thorough review with the agent and owner.
Garagekeepers Legal Liability insurance protects vehicles in the care of the business. It covers losses from damages due to fire, hailstorm, theft, vandalism, or collision. All companies that attend customer vehicles, including repairs, service, parking, and storage, need Garagekeepers Liability insurance.
Dealer Plate Insurance
Road test drives are a natural part of selling autos. Dealer plate insurance protects against losses that happen during a test drive. The coverage includes the vehicle, driver, occupants, and third parties under some conditions.
Auto Dealer Insurance Costs (and what factors affect the price)
Because Auto Dealer Insurance Programs cover a wide range of business types from a small used car lot to massive, multi-state franchise operations, stating flat costs or even price ranges for many coverages is impossible.
Some factors affect a car dealer's insurance quote. They include the size of the business, the number of vehicles under management, the number of employees, the dealer's claims history, the driving records of all who operate vehicles as part of their employment. Policy endorsements and unique situations also contribute to the costs.
According to the Insureon website, automotive businesses pay a median premium of less than $50 per month, or $576 per year, for general liability insurance.
Best Auto Dealer Insurance Programs
Car dealers face many perils with the overhead of extensive inventory, maintenance, and repair operations and dealing with the public for sales and service functions. Overall, operating an auto dealership has the potential to create a high-risk profile for the business.
With so much on the line, car dealers require expertise to guide them to property/casualty insurance solutions specifically tailored to automotive dealerships' needs. The Program Business Market Directory is the first place to start your research. It is there you will find topflight auto dealer insurance programs such as the one Victor Insurance Managers, Inc. offers agents.
The policies from Victor Insurance Managers are designed for franchised auto dealers and independent auto dealers and are underwritten by auto industry experts. Victor’s professional staff is ready to assist in lowering premiums with practical advice any dealership can use. They work to help clients understand what creates underwriting exposure with suggestions for taking measures that lead to lower premiums. For example, following its tips to lower the Demo Ratio can cause premiums to decrease in many cases.