The nation's largest insurer of auto dealerships is spending as much as $100 million to refund dealers it overcharged.
The repayment helped scuttle the planned $1.1 billion sale of Universal Underwriters Group, of Overland Park, Kan., to an investment group headed by a private equity firm. Negotiations on the sale ended this month.
Keith Owens, a spokesman for Universal's parent company, Zurich Financial Services Group, declined to say how many dealers are eligible for the refunds. The dealers bought a commercial property and casualty policy called Unicover, which Universal sells in 49 states.
The Kansas Department of Insurance estimates that most of the dealer refunds in that state will range from $1,000 to $10,000, including interest.
The department discovered the overcharges during a routine audit in 2004. It fined Universal $18,700 for the overcharges but suspended 90 percent of that penalty.
The Unicover policy covers a dealership's inventory, buildings and equipment. It insures against business interruption and crimes such as theft and embezzlement.
Between 2001 and 2004, Owens says, Universal inadvertently charged some dealers premiums for the coverage that exceeded state-imposed limits. The company did not overcharge all dealers who bought Unicover policies, he says.
"This is a small number of policyholders," Owens told Automotive News. The size of the refunds is "a big number because it is for a comprehensive policy written all across the United States for four years."
To cover the dealer refunds and administrative costs, Owens says, Zurich Financial took a $100 million charge against earnings in the third quarter of 2005. Universal expects to finish paying the refunds by June, he says.
After Kansas regulators discovered the overcharges, Owens says, Universal launched voluntary audits in the other states in which it sells Unicover policies. Those reviews, conducted by a third-party auditor, began last August and should conclude by March, he says.
According to Kansas Insurance Department records, regulators discovered "a large number of rating errors" related to Universal's sales of Unicover. A department order last September said the insurer "failed to maintain a valid and up-to-date internal or external audit program" for Unicover.
That order imposed the $18,700 fine. But the insurance department suspended 90 percent of the penalty until it re-examines Universal's compliance with the order in 2008.
The insurance department received no complaints about the Unicover policy, spokeswoman Charlene Bailey says.
"Universal was very cooperative throughout this whole process," Bailey says. "It has been a good working relationship."
Last April, Zurich Financial told of the sale of Universal Underwriters to a group of investors headed by Hellman & Friedman LLC, of San Francisco. This month, the parties said they agreed not to complete the transaction.
You may e-mail Donna Harris at [email protected]