Risk Management
Maybe It's Time To Bid Your Floor-Plan Insurance
By Roger Beery
There is more to the decision to change your floor-plan provider or insurer than just interest rates and insurance rates. In the past few months I have seen a number of independent floor-plan insurers come on the scene. Until recently, manufacturers' floor-plan insurance usually cost less and sometimes even provide broader coverage than the general insurance market offers. But now, some manufacturers' floor-plan insurers have started to rate insurance based on losses. Dealers who have not taken care of their losses are starting to see big premium increases. Since a number of banks have been aggressively seeking dealer business, and new insurers are now available, it may make sense to shop your floor-plan insurance.
Most of this article will deal with the insurance side of this analysis. Rates are rates, so I'm going to discuss coverage issues and some structural financial issues.
Coverage Issues
Some manufacturers' floor-plan programs exclude very important coverage items such as "False Pretense" coverage. Most insurers will pick up coverage for these missing pieces, but it is not automatic. The dealer must cooperate with his insurer on these matters to make sure he is reporting properly. In this case, the reported value may include all new cars for "False Pretense" and only the used inventory for "Collision/Comprehensive."
Another area to watch is "Wind/Hail" deductibles and aggregates. Over the past few years many, if not most, insurers have moved toward higher "Wind/Hail" deductibles and often eliminate aggregate deductibles. Some floor-plan insurance sources have not yet followed suit. Needless to say, aggregate deductibles can be a big benefit to those dealers in hail-prone areas.
When coordinating floor-plan insurance with the balance of your inventory coverage, there are a number of items to look for such as "False Pretense" mentioned earlier. Equally as problematic and even more common is the issue of double coverage. Many floor planners cover used program cars, demos and used cars financed under the floorplan. Dealers often report this part of their inventory to their insurer, resulting in double coverage and double premiums.
Many bank sources provide no insurance at all. As mentioned before, there is a growing "stand alone" market for physical damage coverage. It is important that the dealer be fully aware of what he is buying. Some of the newer carriers do offer broader forms that compare favorably to floor-plan sources and industry insurers. However there are still some forms (particularly Lloyd's of London) which can be very restrictive.
A few dealership insurers offer a unique little coverage often referred to as "wrap-around" coverage. The dealer is allowed to make a claim against its standard insurer, if a claim is denied by the floor-plan source but would be covered under the other policy. As an example, some floor-plan insurers require the dealer to photocopy a prospect's driver's license before allowing him/her to take a car out on a test drive. Let's assume the dealer failed to get the copy and the prospect never came back with the car. The claim would be excluded under the floor-plan coverage. With "wrap-around" coverage, the dealer could make a claim and if no "copy exclusion" exists, there would be coverage. This coverage is many times not offered, but may be available to the dealer who asks.
There does seem to be some confusion in the market today about the term "wrap-around." While only a few insurers provide the coverage mentioned above, a number of carriers do offer "wrap-around" coverage that applies only to add-ons not covered by your flooring source. Be certain that, when you use this term, you know what you are buying.
Financial Issues
Obviously interest rates play a big role in the floor-plan analysis. The cost of insurance should, as well. Changing floor-plan sources may leave dealers relying on their garage insurer or a stand-alone program to provide this coverage. Until recently insurers charged more for physical damage coverage than do floor-plan sources. As more floor-plan insurers begin to loss rate, this premium gap narrows. As more stand-alone carriers enter the market, dealers have more choice.
Another area to look into is the rate structure of floor-plan sources. Some luxury car sources charge a flat fee such as a dollar a day per car. The rate may be competitive if your average vehicle is valued at $65,000. However, if you are insuring Chevrolets at this price, it is exorbitant.
In summary, while lower interest rates are surely attractive, there is more to the floor-plan decision than just rates. The decision may be a little more complex than you thought. Make sure you get all the facts and figures to make the proverbial apples-to-apples comparison.
Roger Beery is President of Austin Consulting Group Inc., a firm specializing in dealer insurance consultation. rbeery@dealeronline.com
