Ann Mullen
President at Mullen Insurance Agency, Inc. - Garland, Texas
Dealer Inventory Coverage - Laying the Foundation
There are so many directions in which to go when the subject is inventory; my expertise lays in the area of insurance.
To lay a foundation, we’ll begin with the basics that we all know:
- Your money invested in inventory is immediately at risk once you receive the vehicles.
- Those risks include: fire, theft, vandalism, collision, hail, windstorm, flood, etc.
- If you have a lienholder, insurance coverage is required.
- If you do not provide that coverage, the lienholder will protect themselves only with single-interest insurance. They provide protection for themselves and you pay for it.
How To Determine the Best Insurance Solution
Determining the best solution to protect your investment is not difficult IF you are choosing only between single-interest and insurance you obtain separate from your lienholder. Ninety-nine percent of the time, the dealer is better served by working with a specialized agent in choosing the coverages needed and controls he requires. As icing on the cake, it is generally less expensive as well
Before we even get to the specific perils available, let’s touch on claim payments. After all, if there were never any claims, no one would need insurance. Unfortunately, too many dealers do not fully understand their protection until they experience a claim — another good reason to work with a specialized agent.
Some definitions to understand when a claim occurs:
ACV – That is actual cash value. MOST individual personal auto policies provide coverage on an ACV basis. In rare circumstances, a contract may include stated value based on a specific vehicle, perhaps an antique or otherwise ‘out of the ordinary’ insured car.
Most dealer policy benefits are paid either on an ACV basis or what the insured paid for the vehicle, plus betterments and improvements, whichever is less. The caution here is ‘Be careful when investing in a vehicle for resale.’ If you exceed the ACV, you will not be reimbursed, in the event of a claim, for those funds over and above the ACV.
AOV – That is the average value per inventory vehicle and a primary number determining your rate. Total inventory divided by number of cars.
MOV – Maximum value per inventory vehicle. Whatever this number is, the limit paid on any one vehicle will not exceed that number as indicated on your application or in your contract.
Coverage, Perils & Other 'Gotchas'
There is no way to completely explore all the details of the various inventory insurance policies available in one discussion. So, we’ll touch on just the high spots and I’ll encourage you again to work with an agent who understands the auto dealer business.
PERILS:
- Too many dealers do not realize they lack protection from weather perils UNTIL they are hit by a flood or hail storm.
- Losses due to weather are more often than not rated on a separate basis AND are subject to different deductibles than other dangers.
- It is becoming more difficult to find companies with insurance programs including weather losses as covered perils.
- Hail is often excluded in certain counties and, in some programs, statewide.
- Theft is another danger one needs to watch closely when choosing inventory protection. Check out the deductible and restrictions applicable to that protection.
- Look at the mileage allowance. Is it 300 miles, 500 miles or nationwide?
- Are contract drivers included in the security provided? Must they be listed? Are there age restrictions?
- Must you be insured to 100% of inventory investment to prevent a coinsurance penalty in the event of a claim?
Illustration:
You carry $100,000 in inventory physical damage coverage. You attend an auction or otherwise obtain an additional $20,000 in vehicle investment. There is a hailstorm before you have an opportunity to report the additional inventory to your insurance carrier. Only one vehicle is damaged: $15000 less deductible would be the normal payment if coinsurance requirements were met. In this instance, $15,000 x .80 = $12,000 – deductible = claim reimbursement.
The same formula would be used if your entire inventory suffered loss.
There are ways to lessen this exposure with a policy that only requires 80% of inventory insured to satisfy a coinsurance penalty; OR a reporting form if the monthly numbers are highly volatile; or a contract insuring only financed or non-financed vehicles; or perhaps some other limiting factor applicable to claim payments, such as insuring only vehicles valued at $15,000 or more – or any specific number. Some inventory policies can be modified in many ways benefiting the dealer.
OTHER ‘GOTCHAS’
- Do you need false pretense coverage?
- What about a specifically scheduled vehicle?
- How much coverage is afforded for an unnamed location?
- What about unaccompanied test drives?
- What are the age requirements?
- And the list goes on.
Every dealer’s operation is unique in some way, whether it is the business plan, the employee make-up, or a dozen other things.
The least expensive and most appropriate protection is best determined by working with an agent who specializes in your niche market and has the desire to understand your insurance budget, needs and choices.
Mullen Insurance Agency Is Ready To Help
Our clients can rest assured, knowing our priority is providing quality products with a competitive premium as we have done for the last thirty plus years.
Do not hesitate to contact me. I’m eager to receive your feedback, questions and comments. If you have specific subjects or insurance concerns you would like to discuss, please let me know. amullen@mulleninsurance.com or www.mulleninsurance.com.
If you’d like additional information on insurance for your business or you’d like to request a quote, please visit https://mulleinsurance.com/#Insurance-quote or give us a call at 972-681-6297.
Ann Mullen-Martin
President
MULLEN INSURANCE AGENCY, INC
A Division of Pinnacle Insurance Partners, LTD
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