used car dealers insurance

5 Reasons Why Local Auto Dealers Need Insurance

The cost to benefits ratio of insurance can’t be ignored. Its short-term payments protect you from the long-term, potential business-ending expenses of everything from natural disasters to civil fines.

Local auto dealers have expensive and vulnerable inventory. If you own an uninsured dealership, you’re responsible for paying any damages related to your cars, customers, and regulation compliance from your own pocket.

Are you wondering why you need insurance for your auto dealership? Keep reading for the reasons why you shouldn’t skimp on this critical business safety net.

1. Criminals Target Auto Dealerships

Auto dealerships are an attractive opportunity for thieves. Cybercriminals will target your IT system while car thieves will target your inventory.

If any adept thieves make off with your cars or customer data, you need insurance coverage for the loss and expenses.

Theft

When car thieves get past security, they have a whole car lot of goods to choose from instead of the isolated vehicle or two.

Over $7 billion in car theft damages was reported to the FBI in 2020, the highest since 2009. Catalytic converter thefts are also on the rise. Only 1,298 converters were reported stolen in 2018, increasing to 14,433 in 2020.

The cost to replace stolen inventory is high. An auto dealership in Detroit lost $300,000 in one night after thieves took only six vehicles from their lot.

Cyber Theft

At least 85% of auto dealerships have reported cyberattacks. These attacks include ransomware and phishing emails.

Dealerships collect sensitive data on customers. This type of data is prime for cybercriminals:

  • Full names and birthdates
  • Addresses
  • W-2s and employment history
  • Social security numbers
  • Bank account numbers
  • Credit and debit card information
  • Fiance and credit applications

Cybercrime is expensive even if you don’t pay a ransom or wire money out. Notifying customers and recovering data is costly.

It’s also difficult to determine how much it will cost until after the data breach happens. With insurance, you won’t have to rely on guesswork and hope you can cover it. 

2. Physical Damage Costs to Auto Dealership Inventory 

Physical damage to your inventory can be devastating, especially for used auto dealers. Repair costs can eat up your profit margins fast on used cars.

Collision Damage

A car accident occurs every minute, according to NHTSA. Collision damage occurs when a car impacts another object, such as a car, tree, pole, or fence. It also includes the physical damages from flipping or rolling after impact.

Collisions can also total a car, which happens when repair costs exceed a car’s value. Repair and replacement costs can add up fast for auto dealerships.

Non-Collision Damage

Hail damage claims on auto insurance average over $4,000. Multiply that by 20 cars on the lot, and a dealership is looking at $80,000 in damages from 15 minutes of a storm.

Other potential damages include:

  • Fires
  • Lighting
  • Floods
  • High winds
  • Explosions

Fires and floods can total an entire lot in one go. Inventory loss and repair costs can reach millions.

For dealerships with insurance, however, the biggest financial setback will be the deductible and any lost sales until new inventory comes in. Some insurance plans even cover lost wages during a disaster period.

2. Customers Claims and Lawsuits Against Local Auto Dealers

Every business has certain liability ins and outs. Business owners must know what their liability pitfalls are, and how to safeguard against expensive and time-consuming lawsuits.

Bodily Injury and Property Damage

Auto dealerships are particularly vulnerable to bodily injury and property damage claims. Many states require local auto dealers to carry minimum liability coverage for these two types of damages.

  • Damage claims can include:
  • Customers test-driving cars
  • Mechanic damage to customer cars
  • Lot driving accidents
  • Slips and falls on-site

A customer can sue for millions in lost wages and medical bills because they slipped and fell in your showroom. You don’t want to be on the hook for millions in settlements and legal costs from a two-second trip and slip.

Errors and Omissions

Auto dealerships offer services that include processing financial documents and auto titles. A small paperwork error can cost your dealership millions if a customer takes you to court.

Errors and omissions coverage can include litigation claims made for:

  • Truth in Lending
  • Truth in Leasing
  • Paperwork errors/oversights
  • Title history
  • Odometer statutes
  • Lemon laws
  • Damage disclosures
  • Mechanic mistakes

Administrative error is one of the most common E&O claims. Missing an application box or marking down incorrect information is grounds for a customer claim, even though the error isn’t deliberate.

For example, a dealership accidentally records a 292,644-mile odometer when it’s actually 922,644 miles. They’re now potentially liable for economic damages because the customer purchased a car with 630,000 extra miles.

Paperwork slip-ups will inevitably happen. E&O insurance will protect your auto dealership from unexpectedly paying out millions in claim damages.

4. Auto Dealership Employees

Workers’ compensation coverage is critical for all employers. Along with meeting state labor requirements, workers’ comp safeguards your dealership against costly medical and lost wages lawsuits.

If your employee(s) suffer an injury on the job, workers’ comp covers:

  • Medical expenses
  • Disability costs
  • Death benefits
  • Missed wages

Workers’ comp can also cover workplace-related illnesses like COVID. Several states already include COVID as a work-related illness for all or certain workers.

Proper workers’ comp coverage will keep you and your employees safe from all these potential injuries and illness-related expenses.

5. Regulations for Auto Insurance

Like auto insurance for a personal vehicle, states can require dealerships to carry certain insurance coverage. For example, every state except Texas requires some form of workers’ compensation coverage.

States like Illinois also require a Certificate of Insurance to obtain a dealership license. The Illinois minimum coverage is at least $100,000 for bodily injury and $50,000 for property damage.

Keeping up with state-required coverage keeps your auto dealership from paying thousands in civil fines for regulatory compliance gaps.

Premium Insurance Coverage at Budget Prices

Local auto dealers work hard to bring the best in service and inventory to their customers. Don’t let accidents and mistakes cost you all your hard-earned money and time because of insurance coverage gaps!

Our services include custom dealership insurance coverage for your specific budget and needs. Contact us today to get started or to receive a free quote.

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