The insurance dangers and safeguards in a dealership deal with an NDA
The current market of dealership purchasers includes the normal mix of the mega-dealers and the smaller “hometown” dealers looking to expand their footprint. But, we also see an influx of well-financed newcomers looking to make their mark on the automotive industry. Some of these are international purchasers who have enlisted experienced General Managers to safeguard their efforts and protect their investment.
As insurance professionals, we are always intrigued by the Non-Disclosure Agreements surrounding these transactions, which can make insurance placements extremely difficult and often costly. But not having insurance can prove even more costly.
Without access to historical claims and underwriting information, most insurance carriers tend to treat newly-formed entities with higher rates and less-than-robust coverage. Insurers look to principals’ years of experience as a guidepost for favorably pricing or acceptance, adding complexity and cost.
For the buyer with established dealerships or dealer groups, adding locations and absorbing entities with little advance notice to insurance agents and carriers can prove to be problematic and provide a fertile field for errors and omissions.
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