Crittenden Inside Insurance Report, March 2016: Auto Dealers

Record U.S. auto sales will bring new capacity and broader coverage to the auto dealers segment. Carriers will expand programs into additional states. Open recall exposures are becoming more of a concern, especial- ly for dealers selling used cars as certified pre-owned vehicles or as is. Pending legislation amid a debate over who is responsible for repairs leaves this exposure up in the air. Ongoing issues related to claims of disclosure will have carriers pushing dealerships to document everything as newer claims of prior damage have dealers second guessing whether they appropriately disclosed a car’s involvement in an accident or other damage.

Cheaper fuel, improving employment and easy credit will lift the fortunes of new and used car dealerships again this year. New car sales rose by 5.7 percent last year to 17.4 million units, breaking a record set in 2000. Car sales rose 7 percent last month. Used car sales are expected to rise, with more than 3 million leased vehicles set to be returned to dealers this year. Also, more than two-thirds of millennials are willing to consider used or certified pre-owned vehicles instead of a new car. This increased sales activity will like- ly result in a corresponding increase in claims frequency as more dealerships, especially used and inde- pendently owned dealerships, provide their own financing to consumers.

In addition to the issues of open recalls and disclosure, documentation remains a leading cause of claims, especially when a customer feels the dealer didn’t appropriately offer insurance or didn’t disclose prior damage or accidents. In response, Hiscox-backed V3 Insurance Partners offers agents additional education- al resources that provide clients with information about how to get a Car Fax report, how to provide a dis- closure statement and tips about prior damage. Exposures to cyber risks, ID theft, stolen vehicles and prop- erty damage from storms also remain top exposures.

AmTrust plans to launch with AmWINS a package product for auto dealers later this year. AmTrust origi- nally began an expansion into this segment after its acquisition of CorePointe Insurance a few years ago. AmTrust will also roll out a separate program next month for franchised auto dealerships in various states, including New Jersey, through program manager United Dealer Services. The program offers an extended garage keepers form that provides extended dealers E&O, extended legal defense coverage and damage to rented premises, among other coverages. Allied World backs coverage in New Jersey, Texas and other states, for a franchised and used auto dealer program launched early this year. The product is to be adminis- tered by Edward E. Hall and will provide garage liability, property, crime and inland marine. QBE’s Prae- torian Insurance Co. will add to its dealer package rules for Act, Error or Omission Amendatory En- dorsement and Exclusion of Specified Acts, Errors and Omissions Liability Coverage in April. Hiscox/V3 added a Scheduled Driver Personal Use Endorsement in January and Blanket Comprehensive coverage late last year. SECURA, Utica Mutual, Nova Casualty and Sentry also added deductibles and/or endorse- ments last year for auto dealers.

Look for Hiscox/V3 to expand coverage through additional endorsements. Its latest Scheduled Driver Per- sonal Use Endorsement is available at no additional cost to insureds to cover personal use of vehicles by owners, spouses, salesmen, and others. Previously there was debate over whether or not a dealer’s personal use of an insured vehicle was covered under a dealers package policy as it is largely contingent on state law and policy language. This new endorsement clarifies coverage.

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The MGA also added blanket coverage for dealers with multiple locations to eliminate the need for coin- surance. This endorsement is also available at no additional cost.
The Hiscox/V3 program targets non-affiliated auto dealers and used dealers including truck and RV dealer- ships. This package program offers a range of coverages including garage liability, property, general liabil- ity, crime, inland marine, E&O via endorsement, and others with the exception of employment practices liability and workers’ compensation. Coverage is available through a network of retail agents unless a state or territory is lacking in retail agents, at which point the MGA taps wholesalers. Agents are typically re- quired to have expertise in auto dealers and an existing book of business. V3 is actively looking for new agent partnerships, especially in the West.

The Auto Dealers Professional Liability program administered by AmWINS and backed by Liberty International Underwriters and Hiscox will benefit from a move by some garage liability writers to drop E&O limits to $25,000. The program has seen additional activity for excess follow-form policies and Hiscox, via AmWINS, can write follow-form excess professional liability up to $1 million, ideal for small to midsize dealerships that only wish to fill in the gaps of E&O coverage on a garage liability policy. The LIU pro- gram targets large dealerships – some of which have annual revenues exceeding $1 billion – and can pro- vide comprehensive coverage that includes a credit discrimination sublimit up to $500,000 and a deceptive trade practice sublimit up to $1 million. The program is designed to cover catastrophic risks such as a class action lawsuit. AmWINS also works with CFC, Beazley and AXIS to provide cyber coverage that can be tailored to auto dealerships. In addition to working with carriers’ in-house brokerages, the program admin- istrator works with retailers and has several key relationships in Florida, California and Colorado where retailers have a concentration of auto dealer accounts.

AmWINS also plans to unleash a new program backed by AmTrust within three to six months to help expand its coverage capabilities. This won’t supplant its relationships with its current carriers but instead provide a package product tailored for small to midsize dealerships. It will offer employment practices liability, cyber, fiduciary, D&O, crime, E&O and other related coverages on a single policy. Limits will be available up to
$5 million. AmWINS previously offered all of these coverages through three or four carriers.

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