Did you know that 74% of drivers worldwide say that their most recent car purchase was a used car? By 2027, the used car market is expected to be worth almost $2.1 billion.
As an insurance producer, you want to make sure that your clients are able to manage their used car dealer risks when dealing with this huge and growing market. Like other businesses, a used car dealership has specific risks that they need to consider. Once you know the risks, you can help manage those risks by offering the right insurance protection.
Keep on reading to learn more about the risks a used car dealership faces every day and how you can help manage that risk.
1) Lawsuits from Buyers
When buyers are not happy with their purchase, their first step is to bring a lawsuit against the used car dealership for selling them a “lemon.” Your clients may also have to deal with trade-in fraud where a disgruntled buyer may claim that they didn’t receive the correct value of the car.
Consider a simple slip-and-fall where a buyer gets injured while at the dealership. It can end up costing your clients a lot of money for legal fees and potential settlements. Another example of an area where you may run into a higher risk of lawsuits is if you have poorly trained guard dogs, and buyers get injured on site.
2) Environmental Exposure and Property Risk
A car dealership has its own list of hazards that can lead to property risk in the future. If they have a garage with their dealership, this can increase the risk because of all the flammable materials and equipment. Welding and trip hazards can result in fires or other damage to their property and inventory.
A top concern for a car dealership manager is getting the right insurance. It needs to be customized to deal with the specific concerns of a used car dealership, including the potential of environmental hazards resulting in unexpected fires and explosions.
Not all insurance covers this risk, especially if there was negligence or a major problem was ignored for years. This is why you should consider recommending ongoing testing and protocols to prevent leaks or contamination.
3) Automobile Risk
Another unique risk for a used car lot is automobile risk. Employees can injure themselves and others when taking cars for test drives and moving cars around the lot. Your client will likely be sued in these circumstances and has to pay the legal and medical costs.
If a part of your client’s business is to rent cars, there are additional risks that they need to worry about. Even if the customer signed a waiver, the dealership could deal with liability. One way to manage this risk is to ensure that they have checks and balances in place including pre-inspection, getting a copy of the driver’s license, and ensuring that minors aren’t allowed to drive the rental car.
3) Garage Keeper’s Risk
When your client is keeping property that is not their inventory, they must deal with a whole separate type of risk known as garage keeper’s risk. Regular garage insurance will not cover third-party property left on your client’s premises. When managing this risk, they should consider additional garage keeper’s insurance to support the basic commercial insurance.
4) Theft
One of the bigger risks a used car dealership has to face is theft because their inventory is highly sought after on the black market. Full-size trucks from Ford and Chevy are the most stolen vehicles, with Honda Accords and Civics a close second. With a coveted inventory, managing a used car dealership means understanding these risks and protecting your business.
Even if your clients have the best security, they can get blindsided by thefts. You will find it helpful to get an understanding of the type of security measures that your client has put in place as this could impact the premiums they pay for their insurance.
5) Employee Fraud
Fraud of any kind is hard to uncover, and sometimes a long time can pass before the culprit is caught. Fraud needs pressure, opportunity, and rationalization. Your clients cannot keep track of all the life-changing circumstances of their employees, which can result in an increased risk of fraud.
This type of risk is not limited to car dealerships, but the amount of funds a car dealership deals with can be higher than other businesses. The volume of your client’s business also impacts the risk levels.
6) Fund Transfer Issues
With the significant amount of funds being transferred regularly, your clients have to worry about fraud. Electronic fund transfers are irreversible, so any fraudulent transaction can impact the bottom line. Fund transfer fraud is when attackers redirect funds before or after a transfer.
The government is increasing its scrutiny of electronic fund transfers especially for larger amounts. They are concerned about funds being directed towards money laundering or terrorist financing.
Any concerns about the suspicious activity can fall to the used car dealership, and they need to protect themselves from potential fines on top of fraudulent activities. When advising clients, consider the risk of fraudulent fund transfers and suspicious transaction activity.
7) Cyber-Attacks
Your clients have a lot of financial and personal information on their servers and databases. The risk of cyber attacks is increasing with the average cost of ransomware attacks on businesses in the United States at about $133,000. The right insurance plan can cover the cost of a cyber-attack, including payment of ransomware.
Protect Your Clients from Used Car Dealer Risks
A used car dealership has different risks when compared to other businesses. For example, their inventory of cars is valuable on the black market, which means they have to deal with a higher risk of theft. Other used car dealer risks include third-party lawsuits, property risks, and fraud.
When you work with us, you get highly customized insurance solutions that manage car dealership risks. Get a free quote today or contact us for more information at (800) 257-5590 and info@primeis.com. We adopt a partnership approach from start to finish with a focus on increasing each others’ value.
Last updated 8/23/22
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Authored by Rick J. Lindsey, CEO, President, and Chairman of Prime Insurance Company
Rick J. Lindsey hails from Salt Lake City, Utah. He began working in the mailroom of his father’s Salt Lake City insurance firm, getting his introduction to the business that became his lifelong career. Lindsey quickly rose through the ranks while working in nearly every imaginable insurance industry job. As an entrepreneur, specialty lines underwriter, claims specialist, risk manager, and a licensed surplus lines broker, Rick Lindsey is highly skilled in all levels of leadership and execution. As he progressed on his career path, Rick discovered an urgent need for insurers willing to write policies for high-risk individuals and businesses. He was frequently frustrated that he could not provide the liability protection these entities desperately needed to safeguard their assets. He also formed the belief that insurance companies acted too quickly to settle frivolous claims. Lindsey decided to try a different approach. He started an insurance company and became the newly formed entity’s CEO. This opportunity has enabled Rick to fill a void in the market and provide a valuable service to businesses, individuals, and insurance agents who write high-risk business. Prime Insurance also specializes in helping individuals and businesses who live a lifestyle or participate in activities that make them difficult for traditional carriers to insure. If you’ve been denied, non-renewed, or canceled coverage, don’t give up quite yet. Chances are Prime Insurance can help.
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