In an effort to cut premiums and broaden coverage for garage liability and workers compensation, 16 auto dealership groups have formed their own insurance company. The insurer, Dealer Management Group LTD, is based in the Cayman Islands. Its founders have headquarters in nine states and include the Buchanan Auto Group, of Sarasota, Fla. The founders are offering coverage to other U.S. dealerships.
The rising number of lawsuits against dealerships is roiling the insurance market, says Steven Gibson, president of Dealer Risk Services. The Boynton Beach, Fla., insurance brokerage helped set up the program.
Garage liability insurance covers injuries at a dealership. The coverage also includes violations of federal laws and rules that govern truth in lending and leasing and odometer tampering.
Only a handful of insurers cover dealerships for garage liability, Gibson says. They include Universal Underwriters Group, Federated Insurance Co., Sentry Insurance Co. and some regional companies, he says.
Coverage amounts have been shrinking, Gibson says. Five years ago, he says, typical annual coverage for some types of garage liability ranged from $500,000 to $1 million for each occurrence, with no limit. Now coverage typically is limited to $25,000 per occurrence, Gibson says, with annual limits of $300,000 to $500,000.
Insurers generally cover court costs but exclude expenses of out-of-court settlements, he says. Dealer Management Group offers broader coverage for garage liability, Gibson says. With a captive, dealers can have some control over their destiny, Gibson told Automotive News. They select their claims administrator, loss control provider, reinsurance partner, financial adviser and counsel.
Dealerships have formed captives to reinsure the extended service contracts and credit life insurance plans they sell. The use of a captive to cover garage liability is unusual, Gibson says.
Captives allow dealerships to share in the underwriting profit, he says. If the program has a good history of limiting losses, dealerships get back a portion of their premiums. That could reduce dealerships garage liability insurance costs by as much as 60 percent, Gibson estimates.
Dealer Management Group aims to serve dealerships with casualty premiums greater than $300,000 a year and with lower-than-average losses. Gibson says about 40 percent of U.S. dealers would qualify for coverage by the captive.