To opt in, or not to opt in?
Whether to opt in or out of wholesale finance floorplan insurance programs can be a tricky decision for automotive dealerships. The average dealer spends more than 40 percent of their total property and liability insurance costs insuring their auto inventory held for sale. In some states, the auto inventory insurance can be more than the entire package premium. There are significant variances in auto inventory insurance rates and terms depending on the carrier, program and dealership.
Depending on the characteristics of the dealership, there are clear individual winners and losers within many of the wholesale floorplan insurance programs. Typically, the winners are dealers exposed to higher than average catastrophic risk like hail and hurricanes. These dealers can expect to see lower premiums and better terms than if they were to be underwritten on a stand-alone basis.
The losers can be dealers located in low exposure areas, i.e. western and northeastern states. These dealers can ultimately pay higher premiums than if they were to be underwritten on a stand-alone basis in the open market. Wholesale finance auto inventory insurance programs are typically underwritten to a rate within a zone or cluster of states. Even within the cluster of states there can be significant differences in risk. However, low risk dealers can subsidize high risk dealers. For example, within Florida, auto inventory insurance rates are much different in Miami than Orlando. If a program created one rate for the state of Florida, then the Orlando dealer would significantly subsidize the Miami risk.
Another prime example would be California. California, traditionally speaking, has low exposure to wind and hail, but has significant exposure to earthquakes. If a program were to create a single rate for the Southwest, bundling California, Arizona, Nevada, and Texas; Californian dealers conceivably could be paying twice the premium than if they were individually underwritten. In some respects, inventory insurance programs can be underwritten similar to group life insurance rates where smokers and non-smokers pay the same rate. If the non-smoker shops for group insurance that is individually underwritten, they will typically find a more competitive alternative.
Not all programs are created equal
Generally, dealerships with low loss ratios, located in low risk areas, benefit the most from seeking competitive proposals. Below is a list of basic questions you should ask your insurance broker to compare:
- Is there a program limit shared among all enrolled dealers on an occurrence and aggregate basis?
- If so, what is it and how does it work in the case of an event such as a hurricane?
- Do I have flood coverage?
- What is the per car flood deductible?
- Is there a percentage of loss flood deductible?
- What is the limit of flood insurance?
- Is there an aggregate flood deductible?
- Do I have earthquake coverage?
- What is the per car deductible or percentage of loss deductible?
- What is the earthquake limit? (particularly important for dealers with cars in parking structures or on roof tops in California)
- What is the limit of insurance per auto? (important for dealers with high-end vehicles)
- What is the limit for “Trick and Device” or “False Pretense” per occurrence?
- What is the aggregate limit?
the correct decision to opt in or out of a wholesale inventory
insurance program can put money in your pocket. For a quick comparison, divide your total average exposure (not limited) by 100, then divide this number by your annual premium.
For auto dealers in the Western states of California, Oregon, Washington, Idaho, or Utah, or the Northeastern states of New Jersey, New York, Pennsylvania, Massachusetts, Connecticut, Vermont, Maine, New Hampshire, consider investing the time to seek alternate proposals.
A comprehensive review of the entire insurance program is important in selecting the best option for your dealership.