Insurance Solutions for Vehicle Inventory
The weather activity of 2017 and 2018 has taken a toll on the Inventory/Dealer Open Lot markets. The record Hail in the Midwest and the effects of Hurricanes Harvey and Irma sent wake up calls through the carrier and reinsurance markets
Underwriters who became ‘’overly aggressive’’ with their pricing and deductibles felt the pains of collective weather losses. A few of these people have since left the employ of those companies they once called ‘’home’’ either voluntarily or via mutual agreement. There is an overall ‘’re-grouping’’ in the marketplace, especially in London, with regard to Inventory coverage.
So, what has changed at the ground level? Well, a lot!
Flood coverage in coastal (and some non-coastal) areas continues to be problematic. Remember the early stages of the market’s flood concerns – the exclusions/limitations were primarily confined to A zones…the so-called ‘’high hazard’’ zones. Then, the carriers moved to exclude inventory with a proximity to an A zone. The restrictions began at 250 feet, but have since increased to 1000 feet.
Next, wind coverage on the coast has become an exclusion for many carriers. Even with a major storm (Hurricane Irma) that encompassed both the east and west coast of Florida and exacted minimal damage to inventory, the markets changed. What we see today is higher rates and Weather Aggregates that are either non-existent or difficult and costly to secure.
Finally, with regard to Hail coverage: If your Dealership is in the mid-west…especially Texas or Colorado, you understand the financial impact associated with the cost of hail coverage. But, it’s not just about paying a higher rate to have a Dealership in Colorado or the Lone Star state. The carriers have awakened to the fact that ‘’Dealers are making money on damaged vehicles via Hail sales.’’
Well, excuse the Dealer community for being creative and opportunistic. Shame on them!
Carriers have developed ‘’hail matrix” programs that pre-determine the payment to dealers for certain damage done by hail: Hood damage over a quarter size is one amount…Roof damage is another, etc. It’s a bit complicated, but the message is clear. “Thou Shalt Suffer a Loss! There Shall Be No Profit From a Hail Storm!”
We all understand the principal of Indemnity…”Return us to the position we were in before the loss…no better/no worse.” But, it’s the charge/and legacy of every entrepreneur to make lemonade out of lemons. To take a bad situation and ‘’make the best of it.’’ It’s what they do!
So, here we are. Rates are up due to the limited market; Flood Coverage is limited at best; Wind Coverage on the coast is a difficult placement; Weather Aggregates are disappearing; and payments for Hail damages have been watered down at the time of loss.
Is there light at the end of the tunnel?
Of course! This is the insurance market, remember! The same market that insured Keith Richards’ (Rolling Stones for you younger folks) guitar fingers, Bruce Springsteen’s raspy voice, and Mariah Carey’s legs. Options and Solutions are always there, you just need to look a bit harder.
We would suggest a deep dive into the Property market with a solid and creative Broker (may I suggest Dealer Risk Services).
There you will find options that might be a pleasant surprise.
Several of the large Property market have shown flexibility with both forms and deductibles. One scenario is to utilize a percentage deductible for Weather losses. The market has used this deductible scenario on Property claims for a decade in CAT states. Why not inventory?
By applying a 2% to 5% deductible on the affected lot’s TIV (Total Insured Values) this scenario provides protection for both the Insurer and the Insured (imagine that). The Insured assumes the risk on the smaller claims, but enjoys a ‘’cap’’ for disasters.
Example: $ 10M TIV @ 3% Weather Deductible is a deductible of $ 300K per occurrence. But, that is also the maximum that particular weather claim would cost. Current deductibles at $ 1500 or $ 2500 per unit would run as follows: 400 Units at $ 1500 per unit = $ 600,000. The cost for a per unit scenario would increase even more as the deductibles moves upward.
The lights of creativity are always on in the insurance industry. Look beyond the ‘’usual suspects’’ and work with seasoned professionals to develop solutions that work for your Dealership.
Watch for our next info blast…Lot Protection and Key Control!