Benefit from Being an Intelligent Insurance Buyer National Automobile Dealers Association August 23, 2012

Presenters Today Roger L. Beery, II President Austin Consulting Group Steven P. Gibson President Dealer Risk Services Jeff Mount EVP-Insurance Operations Federated Insurance

Dealership Insurance Market is in Flux Premiums are going up for the first time in 10 years. Insurance market moves due to competition, reinsurance costs, loss trends, weather related losses, etc. Some carriers like Fairmont Specialty are leaving the market while others like Liberty Mutual are entering. Harco got out and is now back in.

Dealership Insurance Market is in Flux Some insurers are pushing for higher deductibles while others are limiting coverage. Direct writers are using unrelated carriers for EPLI, DPD, Pollution, and Property.

Understanding What Insurers See in Your Loss Runs Frequency vs. Severity Which is more important? Frequency Why? Frequency trends lead to severity. Frequency can be a sign of lax or poor management.

Understanding What Insurers See in Your Loss Runs Map out your Loss Experience by Line Look for trends in both types of claims and location. Document all claims over $10K with Management Response to control future claims.

Risk Management It’s not a once-a-year event Strategies: Assume Prevention Reduce Transfer

Dealer Best Practices #1 Problem – Who’s got the Keys? Motor Vehicle Records Loaners Test Drives Demos Inventory Control Employment Practices

Case Study Dealer ABC Dealer XYZ Ordering MVRs All the time Most hires D&A Testing Yes No Demos No employees All sales people Harassment/ Discrimination Policy Yes No Written Performance Review Yes No

No Two Insurance Programs are Exactly the Same EPLI – Claims made vs. Occurrence Dealer’s Physical Damage Repair & Replacement Percentages Does higher % apply to weather? Paintless Dent Removal Umbrella – Occurrence vs. Aggregate

Thinking Outside the Box Just because your Insurer/Agent doesn’t offer a coverage, does not mean it is not available in the Marketplace.

Thinking Outside the Box Insurance Industry has a very broad scope of products. Deductible and Aggregate Buy Back Programs Property/Windstorm Deductibles DIC Coverage for Business Interruption from Flood Stand Alone Errors and Omissions Coverage Customized policy verbiage Security and Privacy Protection

Thinking Outside the Box Captives and Alternative Risk Programs Group Captives Cell Captives Single Parent Captives Large Deductible and Retro Plans

How Much Risk to Assume? Understand your own tolerance Are higher deductibles the best value? Evaluating loss trends and loss control

Effective Insurance Buying Annual Bidding (Roger) Because Insurers present their renewals with little time to act, dealers have no choice but to be proactive and seek alternatives. Competition is the only way to hold the line on prices. (Nate/Jeff) (Steve) I feel it is important to develop relationships…and the relationship between an Insured and Insurer/Carrier is like a marriage with an “annual” trip to the alter.

Keys to Effective Bid Specifications Do not use your old policy as a bid specification. Develop a framework (coverage, limits, deductibles) of current coverage. Offer an organized specification with consistent data (refer to applications for required data).

Keys to Effective Bid Specifications Loss runs should be valued no longer than 90 days before expiration. Explain any large losses or frequency issues and new loss control measures Discuss coverage and deductible options you would like to see in advance.

Keys to an Effective Bid Process Start at least 60 – 75 days before expiration – 90 optimal. Underwriting information should be complete and consistent Building Valuations should be current Financial Data should be current and accurate Request options and coverage breakdown by line Deductible Options Cost Reducing Options Demo Reductions

Keys to an Effective Bid Process Provide consistent information to all bidders and make them agree to use your data in their premium calculations or note any deviations. Approach both direct writers and agents/brokers to see the whole market. Assign markets where necessary. Analyze bids for both cost and coverage. All things are negotiable-Premiums, Deductibles and Coverage issues.

Summary The dealership market is always in flux. The prudent dealer is proactive. Be aware of your losses. Keep track of changes to old losses. Explain large losses and new loss control measures. Use “best practices” to have a long-term positive effect on losses. Most insurers have coverages with the same title. That doesn’t mean the coverage offered is the same.

Summary Think outside the box for unique coverages that meet your special needs. Deductibles – Look carefully at your loss experience and consider the economics of the risk you are assuming. Develop your own bid specifications for best results. Use the Keys presented for an effective bid process.

Questions?

Thank You!