One of the most valuable coverage options available to Dealerships is Dealers Open Lot (DOL) otherwise known as Physical Damage Coverage. DOL provides physical damage insurance for the dealerships inventory. This coverage comes in the form of comprehensive and collision for vehicles held for sale by the dealership. Why is this coverage option so critical for dealerships? The dealer inventory is basically cash that has been invested in inventory and if something were to happen to the inventory such as a natural disaster, theft, or accident the dealership would want to recover the loss of inventory by the means of insurance.
Many of our clients get confused when we use the term Dealer Open Lot. What if the inventory is not out in the open, but secured by a building or fence? This would not be out in the open as the coverage term suggests. Insurance carriers have coined the term DOL, but it refers to Physical Damage Insurance and it doesn’t matter if the inventory is out in the open or secured by a building or fence.
Wind, Hail, and Flood
The greatest possibility of a loss to the entire inventory is not by theft or someone test driving a vehicle, but is loss by Wind, Hail, and Flood. Weather related losses have the greatest potential of loss by a dealership and the insurance company. Take for example Ronnie Cohen, new car director of Subaru of Plano. A hailstorm tore through this Subaru dealership in 2017 causing over $4 million dollars in damage in less than 30 minutes. “It (hailstorm) got everything on the car – roof, sides, mirrors and back glass.” $4 million dollars in damage to 311 plus vehicles on the lot. U.S. insurers have paid out $15.5 billion to cover storm related losses just in the first half of 2017 according to Aon PLC’s reinsurance broker.
Dealerships located in the eastern United States are especially vulnerable to weather related loss and that is why Zurich Insurance is non-renewing many dealerships, “We are reshaping our auto dealer P&C portfolio to proactively address persistent underperforming due to the continued volatility associated with large and catastrophic hail losses…We continue to offer P&C to all our large mega dealer customers nationwide and many of our franchised dealers”, announced by a spokesperson at Zurich Insurance.
With many insurance carriers pulling back coverage in zones with high possibility of weather related losses, dealerships are struggling to find the adequate coverage options. There are still many carriers writing coverage in these zones, but as the claims rise so are the premiums. It’s best to work with an agency that specializes in Dealership Insurance. Most retail insurance agencies don’t have the expertise in this field.
Dealerships have a wide array of deductible options to choose from when it comes down to Dealers Open Lot. Deductible options are as low as $250 up to $5,000. Many insurance carriers will also offer a max deductible per loss. For example, a dealer can choose a deductible of $1,000 per vehicle with a loss max of $5,000 or higher. This means if the dealership had a catastrophic loss that damaged many vehicles at one time, they would not pay a deductible per vehicle but instead the max deductible, which could save the dealership thousands of dollars. Going back to the Subaru dealership that suffered a loss resulting from hail damage. An estimated 311 auto were damages, if the dealer did not have a lot max deductible then the dealer would have had to pay $1,000 deductible per auto for a total of $311,000, but if they chose to have a loss max deductible of $10,000 then they would pay the $10,000 deductible saving the dealership $301,000.
Claims & Co-Insurance
Insurance companies value the total loss of a vehicle at the amount the dealer paid for the vehicle, not the selling price. This is to protect the insurance carrier from dealerships committing fraud by profiting off a loss. Insurance fraud drives up everyone’s premiums because the insurance company has to offset the loss with premium increases. Remember…insurance carriers must remain solvent to remain in business.
Insurance carriers require dealers to insure 100% of their inventory. If a dealer insures less than 100% and a claim occurs, the insurance carrier will only pay a corresponding percentage of claim. For example, XYZ Motors has indicted that they have a maximum of $100,000 in inventory at any one time. The agent writes the policy with Dealer Open Lot with the corresponding $100,000. XYZ Motors files a claim for vehicle damage caused by a covered loss. During the claims investigation it’s revealed that the actual inventory at time of loss was $200,000. Do to the 100% co-insurance clause the insurance carrier is only required to cover 50% of the loss minus the deductible.
Co-insurance can be avoided by a Monthly Reporting Form offered by many insurance carriers. This policy type basis premiums on the average inventory value over the course of a year. Dealers report monthly their total inventory costs to the insurance company to establish the average and avoid costly mistakes that trigger the co-insurance clause.