F&I administrators are looking for ways to avoid across-the-board price increases on tire-and-wheel policies despite a high level of claims in some markets.
One obvious fix is to charge customers in those markets more, and administrators are doing exactly that, experts say. Markets with a high level of claims include the New York, New Jersey and Connecticut metropolitan area and Southern California.
Other pricing measures include introducing deductibles for dealership visits and creating classes of coverage based on the likely cost of claims for a particular brand, so that customers can opt for cheaper coverage if they want.
For instance, Safe-Guard International in Atlanta now has six classes of tire-and-wheel policies instead of only two a few years ago, Dave Duncan, its president, wrote in an e-mail last week.
Wholesale and retail prices are already roughly double what they were a few years ago, but according to industry execs, prices have begun to stabilize.
"I don't think it's going to get priced out of the market, but we do have to play with it a little bit," said Michael Mennella, vice president of sales and marketing for the automotive division of Nation Safe Drivers in Boca Raton, Fla. The company sells around 30,000 tire-and-wheel policies a month via dealerships, he said in a phone interview this week.
Retail prices for tire-and-wheel coverage on high-end luxury cars can top $2,500 in high-use markets, such as New Jersey, Mennella said. He said that's about $1,000 higher than in other regions.
Dealer costs also are higher for high-end brands. According to Mike Wiener, senior vice president of marketing for Nation Safe Drivers, dealer cost for mass-market brands such as Ford and Chevrolet could be $150 or less versus $1,000 for high-end brands. "But our costs are more than 10 times higher" for upscale brands, he said, because of higher claims.
Branded policies from marques such as BMW and Mercedes-Benz are more expensive in part because they offer a higher level of coverage, such as replacing damaged wheels instead of repairing them and placing no limit on the number of claims during the life of the policy.
But they're also expensive because alloy wheels are expensive to replace and because fashionable, low-profile tires are especially vulnerable to road damage.
"If you hit a curb and ruin a tire, you've got a $400 problem," said Steve Lynch, western regional insurance manager at Mercedes-Benz Financial Services USA. Lynch was a panelist at an F&I conference in Las Vegas last month hosted by Bobit Business Media.
He said the frequency of claims for policies sold at some dealerships is above 100 percent because customers can make an unlimited number of claims.
"We've got one guy, an S-class customer at Mercedes-Benz of Beverly Hills, it seems like every morning he runs into the same pothole," Lynch said. "We have paid seven claims. He has more than made his money back. In the Northeast, I've got a guy with 11 claims."