Motor dealerships – a risk overview

In this second article in our interesting risk assessment series covering businesses in diverse industries, FAnews asked the underwriting experts at CIB to recommend cover for the unique risks faced by motor dealerships.

When addressing the insurance needs of a specific industry or business it is important to take into consideration the everyday operating practices of the business, so that when the policy is being formulated the client can be assured that the policy covers the business for its unique needs. As with all businesses, motor dealerships require a fully comprehensive insurance policy that covers all eventualities.

A motor dealership has unique risks not only because the value of the stock is high but also because stock is regularly being moved in order to be cleaned, repaired, demo'd or displayed.

Also, a motor dealership's clients often leave their vehicles on the premises for services or repairs, which are then driven by the motor dealership's staff. These individuals are not included in the vehicle owner's insurance policy, making these vehicles the responsibility of the motor dealership if damaged while in their care.

The value of hi-tech equipment kept on the premises in workshops or service centres is also high and requires comprehensive coverage in the event of a catastrophic event, theft or accidental damage. The value of such items should be updated on a regular basis to avoid underinsurance.

CIB Insurance highly recommends that the business undergo a Risk Management Analysis to identify these and other areas that constitute a risk, and could for any number of reasons result in the need to claim. "This sort of analysis benefits the client in that they are able to address areas of risk before hazards strike, minimising the chances that the business will need to claim," says Neil Harvey, Survey Manager for CIB Insurance.

A Risk Management Analysis is undertaken by an insurance industry professional who could possibly identify those areas of cover that are overlooked by the business owner. The analysis offers peace of mind to the client, because when the policy is signed the client will know that they are comprehensively covered.

Below is a list of the different types of cover the motor dealership owner should expect to have included in their policy:

1. Fire and Peril Cover

Fires are very destructive and could result in a loss of not only stock, but also the machinery within the building and the building itself. It is therefore recommended that Fire and Peril Cover be taken to insure stock including vehicles and parts, fixtures and fittings, as well as customers' vehicles that are kept on the premises. Fire and Peril would also cover the client for the plant and machinery within the dealership.

2. Loss of Profits – Business Interruption

It is important to keep in mind that in the event of a catastrophic event such as fire, where the premises are rendered uninhabitable, the business will no longer be operational, and will therefore no longer be bringing in an income. This however, does not mean that the business' expenses cease. Having Loss of Profits Cover included in the policy ensures that the operating expenses, net profit and standing charges will be covered.

3. Theft

Theft Cover does not only cover the stock sitting on the showroom floor, it will also protect the business in case of a client's vehicle being stolen from the premises, as well as the loss of spares held on the premises. It is important to note however, that one provision within Theft Cover is that any loss of vehicles or equipment must be due to a violent or forced entry onto the premises and or exit from the premises.

4. Public Liability

In the event that a client's property is damaged on the premises or a client is injured on the premises and the dealership is proven to be negligent, Public Liability would cover the cost. Also, in the event that a vehicle being repaired results in faulty workmanship, Defective Workmanship Cover can be included in the policy to cover the cost incurred to the dealer in repairing the damage.

5. Glass Cover

Motor dealerships have a large amount of glass on their showrooms which need to be covered in the event that they are damaged. With Glass Cover the business will be covered in the event of accidental breakage.

6. Motor Traders Internal

In addition to Theft and Public Liability Cover, it is recommended that a motor dealership include Motor Traders Internal Cover in their policy. This will ensure that the motor dealership is covered in the event of motor accidents occurring on their premises, whether the accident occurs with stock or a customer's vehicle. This cover also includes windscreen cover, in the event of accidental damage only. Cover can also be included for accidental damage caused by hoists within the workshop.

It is important to remember that Motor Traders Internal Cover does not include Theft Cover; therefore Theft Cover must be included separately.

7. Motor Traders External

An important consideration for all motor dealerships is the possibility of damage or theft of vehicles that have been driven off the showroom floor, for either cleaning, repair or demo purposes. This type of risk is important to take into consideration as the vehicles on showroom floors are often removed to be cleaned or demo'd by potential buyers. Third Party liability up to R2 500 000 is also included in both Motor Traders External and Motor Trader Internal Cover. The cover offered under Motor Traders External Cover can be chosen on a comprehensive basis, for example on a Third Party Fire and Theft basis or strictly Third Party.

There are also various extensions of cover that should be considered, for example, social domestic and pleasure use for staff members who are allowed company vehicles (these persons need to be specified on the policy), and cover for company-owned vehicles.

A motor dealership is different from most retail outlets as each item of stock has a considerably higher value than the kinds of stock carried by other retailers. To protect both the policyholder and the broker, it is important for brokers to explain any policy extension and conditions to the client. It is important to keep this in mind as even small accidental damages can be an expensive outlay if not properly insured.

"We recommend that owners of a motor dealership ask for a Risk Management Analysis and carefully go through their policies with their broker, purely to make sure that they do not walk away with a false sense of security," says Jonjon Smit, National Sales Manager for CIB Insurance Solutions. "The last thing we want is for one of our policyholders to submit a claim and be unable to benefit because their policy is not structured properly."