Buying insurance is like buying most anything, even cars. The seller wants to get as much as he can for his product. Insurance companies are entitled to a profit like anyone else, including yourself. You must remember, however, every extra dollar you pay is one less dollar of profit from your bottom line. Prudent dealers understand this concept and do all they can to minimize their insurance costs without sacrificing coverage. It can and should be done.
Some carriers will try each year to get a 10% to 15% premium increase unless they are challenged. Quotes from other carriers are the best way to challenge them. I know many dealers who are irritated by this annual dance. Some even change insurers over it, however, it seems to be the way business is done in this "soft market." My guess is it won't change soon, so let's talk about what a dealer can do to maximize his profits by reducing his insurance costs.
Your situation probably falls into one of three categories:
1. Losses have been and remain low - you feel you should get the best rates in the market
2. Losses are just okay or you have taken strong steps to reduce high losses -you still want a good deal
3. Losses have been a disaster - you want coverage at an affordable price
Please note for future reference the key here is losses. No matter what your situation, an aggressive and effective bidding process is your answer.
To achieve an aggressive and effective bid process, there is one important rule that must be followed. All bidders must bid on the same values. They must also be able to prove to you that they are bidding on the same values. Many parts of your insurance coverage are based on variables such as your auto inventory, number of employees and payroll by class. Often, dealers inadvertently give different numbers to different bidders. BIG mistake! Needless to say, a good bid can be made to look bad and visa versa. It is also possible for bidders not to use the agreed-to variables they said they did. One major carrier will use the average of last year's reports even if you request otherwise. There are two problems with this. First, it makes any comparison difficult, and secondly, it gives the growing dealership an artificially low quote. Use values that reflect what you anticipate will happen in the next twelve months - that way you should be able to budget more accurately.
The best way to check for accuracy with variables and to compare the real ultimate premiums is to require insurers to provide you copies of their reporting forms prior to choosing an insurer. You must fill out the form and multiply it by the twelve months to determine an annual figure. The chances of your finding an error is high. I can say we find errors well over 50% of the time. They are rarely in the dealer's favor. For those of you who did not do this last year, I would suggest you take out last year's quote and compare it to what you will pay if you annualize last month's reporting form. Before you call your insurer with the news, be sure to check the current variables against what you gave the insurer to work from.
Bidding will help dealers, regardless of which of the three categories listed they fall under. Competition is a wonderful thing. Remember that the insurance market is fluid and constantly changing. Even the dealership with bad losses can benefit from having multiple carriers look at their business. This year there is a new carrier on the block. We are seeing them bid much more frequently. But this is just one example of how this market changes.
Remember that all we've talked about here is price; coverage quality is just as important. If you are going to embark on a bid process, you must be able to analyze the intricacies of each coverage form. As we have discussed many times, all coverage forms are not created equally. Quite often the bid process will even put you in a position to ask for coverage you never dreamed you could get. Don't ever forget, the ultimate responsibility for getting the best coverage at the best price is yours. Don't take this responsibility lightly.