Auto dealership market – what insurance brokers need to know

Auto dealership market – what insurance brokers need to know

Auto dealership market – what insurance brokers need to know | Insurance Business America

Supply chain issues, weather events and EV mandates pose challenges

Auto dealership market – what insurance brokers need to know

Motor & Fleet


This article was produced in partnership with Victor Insurance Managers LLC

David Saric, of Insurance Business, sat down with Barry Haring, sales leader of Victor Insurance’s auto dealerships program at Victor Insurance to discuss the current and future state of the auto dealer market. 

Challenges in the auto dealership space have seen some carriers turn away from the market and newer entrants could be looking to unsustainable pricing models, an industry leader has cautioned. 

“The franchised auto dealers market has historically been very competitive. It’s a crowded space currently writing Franchise Auto Dealers,” said Barry Haring, sales leader of Victor Insurance’s auto dealerships program.

“We’ve seen a couple of competitors exit due to profitability, but now we’ve seen a few new entrants, and in an effort to quickly gain market share, we see pricing from some that is clearly unsustainable based on industry loss trends and inflationary pressure.”

In an interview with Insurance Business, Haring spoke about why dealership inventories may never be what they used to. He also revealed how hailstorms and flooding are transforming what types of coverage and risk mitigation practices insureds will need, why the shift to EV inventories is a challenge due to manufacturer and building code requirements, and how Victor works to supply market leading coverage for clients.

“We are seeing dealer inventories incrementally improving”

While the auto dealership industry is actively moving past supply chain semiconductor chip issues that led to dwindling salesfloor fleets, the looming threat of erratic weather events and manufacturer mandated EV certification and required dealership investments are providing persistent challenges, according to Haring.

The semiconductor chip shortage created a great deal of stress for auto dealers, insureds and insurers alike.

Smaller inventories triggered a domino effect; dealerships could not keep up with increased demand causing consumers to turn to the used-car market, which further escalated inventory shortages and gave rise to a spike in used-car prices. With many consumers unable to secure or afford new or used vehicles, demand for repairs and maintenance to their current vehicles soared, contributing to severe auto part shortages. This perfect storm meant that in the event of a car theft or collision resulting in a write off, consumers and carriers were met with extensive waitlist and claims resolutions.

“We are seeing dealer inventories incrementally improving, which is a good thing” Haring said.

Prior to the United Auto Workers strike, manufacturers were able to ramp up production again, allowing for more vehicles to enter the marketplace at a faster rate. 

However, he was somewhat cautious about this rebound, stating that “if you listen to a lot of the experts out there, it may never get back to those inventory levels that dealers had on their lot.”

It is expected that dealerships will have an inventory of 80% to 90% of what was available on salesfloors pre-COVID, but that online shopping preferences will remain a viable option for consumers.

“During that time period, people would order a vehicle online and then to the dealership and take delivery of the vehicle once the manufacturer had shipped to the dealership — we still believe that trend will continue,” Haring said.

With this “special order market” keeping apace, dealerships will have to adapt to consumer demands of not needing the physical vehicle to test drive or view in a lot. This could be a driver of the “New Normal.”

Being more mindful of protecting an inventory

The biggest threat that increased frequency and severity of weather events pose for auto dealerships is the direct impact they have on inventories.

As a result, dealerships must use various tools at their disposal, especially the insight brokers/carriers provide in order to prepare for an upcoming storm, to stow away inventory as best as possible.

For example, if a dealership is made aware that certain hail or windstorms are forthcoming, it is essential that the employees move the most expensive vehicles out of harm’s way to save on any potential large losses that may arise.

“The businesses need to be more cognizant of risk mitigation steps,” Haring said.

Preparing for an EV influx

The US government has mandated that salesfloor inventories must offer a larger selection of EV battery-powered automobiles within the next decade, two-thirds by 2032, which could pose further challenges for auto dealerships and their underwriters.

“Automobile manufacturers are able to store its inventory of EV batteries in climate-controlled spaces. However, there is uncertainty if dealers will need store these batteries on their property and if they even have the capability to do so,” Haring said.

Furthermore, there is also pushback by some dealers to electric vehicle manufacturers requiring dealership investment to procure inventory to sell. 

This puts pressure on these businesses to invest a significant amount in charging stations and other related services to even be considered for a specific EV allocation.

“For some insurers, there are questions around whether these chargers are part of the building or contents, and who owns them,” Haring said.

While some dealerships have been pushing back against these mandates, Haring believes that at the end of the day, insurance carriers will find a solution to provide the required coverage for any equipment they may have to purchase, giving them the safety net as they adapt to this new reality.

Thriving amidst the challenge of auto dealership insurance

Amid all these challenges facing auto dealerships, what will allow an underwriter to prevail, especially with bleaker economic and ecological conditions, is having disciplined underwriting that prioritizes long term stability for insurance agents and insureds.

“Victor has been writing franchise auto dealers coverage since 2010,” Haring said.

Collaborating with carrier partner, Allianz, has helped a company like Victor continue to place business in this sector and persevere amongst challenging conditions, offering comprehensive coverage that includes Garage Liability, Property, Umbrella and Dealers Open Lot coverage.

Employing a director of claims with over 40-years of auto dealership experience also allows for a better outcome for clients in the event of a loss. 

The final piece of the puzzle is tapping into the expertise of a specialty claims service partner that has over 25-years of experience adjusting for floods, hail, hurricane, tornado and fire losses allows Victor to respond to a loss event with thorough insight and analytics.

“That’s a big differentiator for us in that we get excellent reviews when those guys hop on a plane and fly in the day after a hailstorm and are in there adjusting the claim,” Haring said.