Despite the drought plaguing parts of the U.S., there has been a recent trend of frequency and severity in hail and flood losses. This makes insuring auto inventory very challenging. Many dealers are seeing increasing hail and flood deductibles and in some cases insurers have introduced flood exclusions for the first time.
Most insurance companies use outside vendors to evaluate flood exposure to your auto inventory. These outside vendor services have improved their capabilities over the years and are providing the underwriters better and better information to evaluate the exposures to flood.
One fundamental factor that goes into the risk equation is the flood zone assessment. It is critical to understand that this risk is not based solely on the street address of your dealership. The more important and dispositive factor is the position of auto inventory relative to flood zones. In other words, while a dealership itself may not reside within a flood zone; sections of the parking lot where the auto inventory is parked may exist within a flood zone. When this situation arises many insurance companies are issuing flood exclusions and transferring the risks of loss to your balance sheet. Even if the insurance company is willing to accept the risk with a deductible the loss to the dealership in the event of flooding can be significant.
Here’s what you should do
Ask your insurance broker to review the flood report including overlaying the flood zones to all of your dealership properties, premises and operations. If any part of your dealership is in a flood zone, you need to take precautions to eliminate or minimize flood exposure. Your insurance agent should be able to make recommendations.
If you are developing an evacuation plan, review the alternative locations exposure to flood with your insurance agent to ensure that location isn’t exposed to flood.
If you are considering acquiring a dealership or additional property review the flood reports prior to closing.
Here’s what you should know
It is critical that property owners do not abandon flood considerations after a loan closing. Flood plains are frequently reevaluated to reflect evolving climate changes and man-made influences. Failure to continually re-assess zone designations is a dangerous game. A business that exists in a minimal flood zone at the time of closing could find itself located in significant flood zone several years later — without having moved an inch — and as a result insurance may no longer respond because the policy has a flood exclusion for autos.
By all accounts finding competitive inventory coverage is getting more challenging. As an auto dealer, you should take the time to educate yourself about your potential exposures so there are no surprises come renewal time - or when it rains.