
Failure to understand the insurance claims culture of a dealership acquisition can prove costly
I want to return to a topic we touched on in a previous issue. It involves the acquisition of a Dealership (or multiple Dealerships) as it relates to the acquirer’s insurance program.
Most Dealers that are financially savvy enough to make major purchases are utilizing a Loss Sensitive program for their insurance. It could be a Large Deductible, Retention, or even a Captive Program – all are solid platforms designed to control the cost of insurance. However, with all Loss Sensitive programs, the risk/reward factor exists. Plans designed around premium reduction require the Insured to share in the cost of claims. The level of participation can be a “little” or it can be a “lot.”
Relate this to a new acquisition. While the acquiring Dealer is not responsible for occurrences of the past, he or she will most certainly be “on the hook” for occurrences Day 1 and afterward from the closing date. Point is, the Dealership Team should apply the same due diligence used in the financial analysis of the acquisition when looking at the “claims culture” of the entity being purchased.
Understanding the historical claims of a purchase is critical. Good operators know how their Dealerships work and have gone to great lengths to install policies and procedures to control claims. But, it takes time to implement those strategies into a new acquisition. Certainly it will not happen immediately.
So, how long? Is a 90-day window achievable for total immersion into the controls of the purchaser’s Risk Management system? That’s aggressive, but it’s also a full quarter of a year and a lot can happen from a claims perspective.
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Steven P. Gibson is the President of Dealer Risk Services, Inc., a Florida-based firm that provides insurance expertise to the Automotive Industry. He can be reached at sgibson@dealerriskservices.com and 321-733-6253.
Automotive Buy Sell Report is the first website and weekly report to give participants in the automotive dealership buy sell industry a place to find news and information regarding the purchase, sale and valuation of automobile dealerships, and state-by-state listings of Resources.
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