I know I will probably get a few calls from insurers on this article, but here we go. While there is no doubt that there is a service and loyalty component to insurance, it is, as much as anything else, a commodity.
The price of the commodity we know as insurance is driven by supply and demand, just like any other. I remember in the early 90's as prices started to fall, we were told to "enjoy it while it lasts and it won't last long." Well, they are still falling and there seems to be no end in sight. The first question is, "WHY?". I could go back to my professorial days teaching insurance at the University of Texas and wax on the international reinsurance market and other boring issues in insurance economics, but I won't. It's really a lot simpler than that.
The consumers of dealership insurance are in an enviable position. Since many of the providers of insurance for dealerships insure mostly dealerships, they must compete for our business. Many of these carriers can't just decide tomorrow that they want to write insurance for ski areas and to heck with dealerships. We are married to them and they to us. Adding to the scenario, more insurance companies have entered the market this year. To get business, they must compete on a price basis because the rest of their product is untested. The consolidators in the industry compound all of this. There are fewer dealerships buying insurance. So the supply goes up just as demand goes down. Thus prices fall.
What does all this mean to the dealer? First and foremost, dealers with excellent loss experience may see quotes that appear "too good to be true." Of course, we were all taught that if something seems too good to be true, it probably is. This insurance market is often the exception to the rule. I am not saying that dealers should not do their due diligence and make sure the policies have the correct coverages and the correct rating basis. It's just that some of the best companies are in there slashing prices like everyone else. Don't dismiss these quotes just because you'll save too much money. As the world economies tighten, you'll need to save all the money you can. Remember every dollar saved on insurance is pure profit on your bottom line.
One bid process we did recently had to take the cake. This is a dealer group who had bid their coverage every year since 1988. They have always had the lowest price available in the market and last year paid about $300,000. This year, the low bid was $95,000. That's a 2/3 premium reduction. We reviewed all the coverages and nothing was lacking. The rating was properly done as well. Even we thought this was too good to be true, so we had the salesman question the underwriter. The salesman was reprimanded for questioning the underwriter's judgement. That's the kind of crazy market we are in. Please remember that this case was exceptional and you should not expect your premiums to drop to such an extent.
How low will it go? Who knows? The international reinsurance market is soft and prices are low. New insurers are entering this market and cutting prices. Fewer buyers are buying from more sellers. I don't see it changing any time soon. But I didn't predict the collapse of the Ruble either.
Roger Beery is President of Austin Consulting Group, Inc., a firm specializing in dealer insurance consultation. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3. Internet addresses for ACG are: http://www.austincg.com and E-Mail to rb@austincg.com