I’m willing to bet that most car dealers out there don’t
think of their insurance policy as an investment. And the few that do probably don’t think that
as an investment, their garage
insurance policy will generate an investment return unless they have a
loss. But because insurance companies
are always looking for ways to determine which of their clients will have
losses and which will not, sometimes this search generates changes that can
offer the dealer some very nice choices.
Such is the case with the paid in full discount.
Dealers insurance is really not very different from other kinds
of insurance policies when it comes to risk selection by the insurance
companies. Everyone understands that if
the insurance company can tell in advance which dealers will have losses and
which will not, then they will make a lot more money. The search for just the right metric to help
them determine this is a bit of a Holy Grail type search. Now insurance companies have relied heavily
on many different factors to choose which auto dealers to accept as clients and
which ones to walk away from. Some of
these factors seem obvious to the lay person.
Some of the more obvious ones are the driving records of the dealers,
the past loss history of the dealers or the general condition of the dealership
location itself. Others factors are less
clear, like running a credit check on the dealer or refusing to insure dealers
who have a buy here, pay here service on site.
But if the insurance companies have one thing going for them, it is past
data. If they can come up with a way to
back check a new idea against past experience, then they will often assume that
they can project this behavior and risk assessment into the future. The paid in full discount idea was probably
something that simply jumped into someone’s head one day. They then simply had to compare the loss
histories for dealers who paid in full for their garage policy against those
that paid monthly or on some other schedule.
They must have found that the pay in full group had fewer losses and so
this new idea was born.
Auto Owners Insurance Company, an insurance carrier who
insures many dealers across many states must have made this discovery
recently. Once they knew that dealers
who paid in full had fewer losses than those who used payment plans, they
simply needed a way to add an incentive to these pay in full accounts so that
they could attract more of them over time.
What they came up with, I think, is very generous, though it may just
reflect the difference in loss histories between these two groups. Auto Owners now allows a 10% discount to all
dealers who pay in full on their garage liability and dealers blanket insurance
policies.
Now if you are a dealer and you purchase your insurance from
Auto Owners, consider the math on what this means. Saving 10% on the cost of your dealer
policies by simply paying in full is like receiving a 10% return on your
investment money. If you had to borrow the money from the bank to pay for your
garage insurance, I doubt you would have to pay anywhere near 10%
interest. But actually the math tells us that it is
even better than that. Assume for a
moment that the cost of your garage insurance policy is $1000 and you only have
to pay $900 for the policy if you pay in full, then that is a quick 10%
return. But if you compare this to
paying 10 monthly payments of $100 each then the return is much greater than
10%. This is because each month that you
pay off the balance, you have less and less left to invest somewhere else to
obtain some return. So in the long run a
10% discount might generate as much as 12% or more return, depending on how
many payments you have and how quickly you pay off your garage policy.
Over time, this generous discount will probably go
away. That’s because although it is
designed to attract the better risk dealers who usually pay in full, the
incentive will now attract some of the monthly pay plan dealers as well since
it is so generous. Once that starts to
happen, the risk assessment piece of the puzzle becomes less clear and over
time the pay in full group’s loss history will more nearly reflect that of the
monthly pay plan group. So my advice
would be to take advantage of this discount while it is still around.
Clinard Insurance
Group, located in lovely Winston Salem, NC actively insures more than 300 used
car dealers, all across North Carolina, South Carolina, Tennessee, Virginia and
Georgia. We would love to help you save
money on your dealers insurance policies, so please call us, toll free, at
877-687-7557 or visit us on the web at www.TheAutoDealersHelper.com.
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