Dealer Groups - Is bigger better?
With a trend towards consolidation continuing in the Canadian dealership world, it is increasingly important to account for the issues of risk management and insurability in any new group structure — a recent dealer consolidation transaction actually failed due to insurability and insurance requirements.
As explored in past articles, consolidation can raise several concerns regarding risk management. Larger groups will often have a number of dealerships located in a single city, area, or auto mall resulting in a concentration of values that can quickly exceed the comfort or capacity of most insurers to underwrite and thereby create a need for re-insurance — an added expense from a coverage standpoint. From a risk management point of view, it is usually preferred to see a good geographic spread of risk. However, even if dealers in a larger group are in close proximity to one another there are still several measures they can take to intelligently manage their risk. Such initiatives include:
Inventory protection for weather-related losses. Creative solutions are available for insureds as well as floorplan providers to help to mitigate potential losses, and reduce severity, in the event of a weather-related loss. This is also an area to keep in mind as you consider construction of a new facility or the addition of an offsite vehicle storage location or lot.
Proper management of human resource efforts. Consolidations often make it difficult for senior management to attend meetings at all locations on a regular basis, requiring a heavier reliance on regional or local managers. Human resources is an area in which dealerships have traditionally fallen short. An investment in completing proper screening and checks prior to offers of employment will usually save time and money in the long run.
Higher levels of security for both vehicle keys and facilities. With continuous improvements in quality, and reductions in price, digital camera systems are becoming more commonplace at dealerships. When investing in digital surveillance, remember to consider offsite monitoring during closed periods as well as effectively advertising the presence of the camera system. Electronic key management systems are also becoming more commonplace in the dealership environment. With the help of motivated management, these types of systems have proven to help reduce both self-insured and insurance losses, and save staff and management valuable time. As an added benefit, the use of these systems also help to demonstrate your risk management awareness to underwriters.
Risk management meetings. Such management meetings are usually well-received by ownership and serve as a way to help spread awareness with respect to loss and insurance costs, as well as their effect on a dealership’s bottom-line. As with anything, the proper attitude towards risk management needs to come from the top down.
Establishment of continuous improvement plans, self-inspections, and claims advocacy in the event of a claim. It is increasingly important that the correct steps are taken, and that claims are reported in a timely manner. The ability to manage a single claim correctly can mean tremendous savings. Dealers that make these types of investments continue to see fewer losses and more stable insurance premiums going forward.
Establishment of an internal risk control process, institution of a reporting system, and internal claims management controls. Every dealership should have an internal process in place; ask your broker or risk manager to assist in setting one up for your dealership or group.
Scrutiny of deductible and self-insured retention levels. Dealer groups are often moving to higher deductibles and higher levels of self-insured retention than single-point stores as a way to help control expenses. While this can be a way of saving on upfront premiums, self-insured losses can often end-up totaling more than the cost of coverage. It is currently estimated that the average Canadian dealership will personally cover more than $25,000/year in self-insured or unreported losses.
Consolidation is one of the newer challenges dealer groups face in order to grow and help their businesses succeed. Through the employment of innovation, creative insurance solutions, and sound risk management advice, dealer groups can be ready to embrace the change and help position themselves for success.