Purchasing Shop Insurance

by Gerald Cecil


How many times have you been forced to make a decision at the very last minute about something you did not fully understand? How often have you thrown your hands up in frustration and said, "Just give me the best price" or "You're the agent, you take care of it"? This is not a very wise way to purchase anything; and yet every year, many shop owners purchase insurance this way.

Shop insurance was once viewed as an incidental expense. Coverages were similar, prices were close and there weren't concerns about the environment in which you, the shop owner, operate. Times have changed. There are concerns about pollution liability; discrimination; signage and advertising; wrongful termination; business continuation expenses; investments in tools and equipment; and punitive damages. All of these are significant issues. Without proper coverage, you are jeopardizing your investment.

You should understand your need for insurance as well as your options. It's one thing to risk your capital and personal investment in your day-to-day business, but it's another to unknowingly assume risks that would be better covered under insurance. Following are ideas to help you make informed decisions.

Employee Tools
If your employees can't work, you can't operate and you certainly can't generate revenue. Protect your employees' tools under your policy. Perhaps you are able to provide an employee benefit at a time when your competitor does not provide such a valuable service. Whatever the motivation, be certain you are covering employee tools, listing each item and providing protection not only for your employees, but for your business.

Key Employees/Employee Benefits
No one wants to face the possibility, but what happens to your business if a key employee dies? You must be prepared for the impact that loss will have on your bottom line. How long will it take for you to replace a key employee? All shop owners face the issue of employee benefits. Have you considered the life insurance your employees may someday own as an employee benefit? In the meantime, that coverage provides you with the financial resources to offset the loss of a key employee.

Employment Practices, Liability/Discrimination
Many shop owners think the need for protection from allegations of discrimination or wrongful termination exists only if there is a significant span of control (for example managing numerous locations or a sizable work force). This can be a problem for any business. This rapidly escalating area of litigation is second only to auto accidents as an area of loss. Be sure you have a nondiscriminatory policy and enforce it. Remember, you also have an exposure for the actions of your employees toward delivery drivers and members of the general public.

Garagekeepers Liability
There are many ways to purchase this coverage. You don't want to economize here by purchasing legal liability only. Customer Auto/Direct Primary is your coverage of choice for protection when: With this coverage you won't have to ask your customer to turn their claim in to their insurance company.

Business Interruption/Continuation
Even though building and contents may be properly covered, many businesses fail to purchase coverage to assure a continuation of revenue when a loss to a building or contents occurs. While you are partially or totally shut down as a result of a loss, you have ongoing revenue needs for not only you and the profit you expect, but also to keep key employees, pay family members involved in the business and pay ongoing expenses. Identify your ongoing expenses and profit figures you need, and insure them properly. Even though you may insure your building and contents to their proper replacement limits, if it takes 90 days to rebuild, you may still be out of business without a continuation of monies needed to pay expenses and key payroll.

Customer Loaners/Rentals
A serious customer service issue involves providing vehicles for customer use while their automobile is being serviced. Unfortunately, this area can cause adverse loss experience and increase your cost of insurance.

Be sure you are covered for the exposure, but more importantly, be sure you have a rental/loaner agreement that makes certain your customer has coverage.

Building And Contents
If you own your building, make sure you have an appraisal. Be certain you insure 100 percent of the value and purchase coverage to guarantee replacement of the building with like-kind and quality. You want to cover your building for what it would cost to replace it and not what you purchased it for or its book value.

Co-insurance -- a commonly mentioned, yet widely misunderstood subject -- plays a critical role when property claims are adjusted. Property insurance is not the same as health insurance. You do not pay a portion of your claim to get 100 percent reimbursement for a covered loss. A co-insurance penalty may apply to a building without proper insurance-to-value so that only a percentage of your property loss is paid. Contact your current insurance provider or ask the representative of a potential provider about your co-insurance needs.

Even though you may not own the building, you may be responsible for insuring it or perhaps the building glass, boiler or machinery. Start by reviewing your rental agreement and verify that you are covered for damage to the structure you occupy via fire legal liability. You should also have a current statement of values to properly insure your contents, equipment and stock. Once again, do not forget to insure it for the cost of replacement.

Finally, you should have proper coverage for any improvements and betterments you may make to your rented property.

Pollution Liability
As a generator of hazardous waste, you have significant pollution liability exposures. Even though you use an EPA-approved transporter, you still have exposures on site, including ruptured above-ground tanks, accidental flushing of pollutants down a drain or any threat of accidental pollution damage to another party. You must be certain this coverage is provided to handle the catastrophic exposure that you face on a daily basis.

Experience
Your ultimate cost of insurance is affected by your loss experience. To know what may be driving your cost of insurance, it is important to request loss runs on at least an annual basis. Loss runs should be requested on property, garage, garagekeepers, Workers' Compensation and other coverages such as fleet auto. Be sure your current company provides this information to be certain you are not being assessed with experience that may be incorrect. Since most accounts are experience-rated in some fashion, the loss experience is most important. In fact, in many states it is a requirement that loss experience be provided to you by your current insurance company upon your request.

Cash Flow
With the exception of whole life insurance, insurance is like a lease -- you never own it. Get the best pay plan possible so you are paying in the most favorable way. Don't underestimate your exposures thinking you will save money. Ultimately you will have to pay an additional lump sum at audit time, perhaps when you can least afford it. Most importantly, it is appropriate to be certain that you pay premiums on a monthly basis throughout the period of the year based upon the actual exposures that exist to avoid audit surprises.

Saving Money/Buying Smart
Buy the most comprehensive and broadest coverage possible. With respect to liability, your minimum coverages should include an umbrella. Save money with a superior cash flow plan and large deductibles. But do not attempt to save money by cutting back on the coverage you absolutely need to avoid the severity of exposures that could knock you out of business.

Loss Prevention
Obtain a loss prevention guidebook from your current insurance company and implement a loss prevention program. Create programs whereby employees are rewarded for their safe activities. The objective is to keep your money in your business and not pay it out in higher insurance premiums because of adverse losses.

Coverage Decisions
If you would like a renewal checklist and verification form that will take you through the various coverages you should consider, regardless of your current insurance provider, call Marsha Thompson at (800) 840-8842, ext. 1616. A form will be provided to assist you in making what is often a very difficult decision.

Gerald "Gerry" Cecil, CPCU, is senior director of market development for the Automotive Specialty Markets (ASM) Division at Universal Underwriters Group. ASM offers the "How to Purchase Business Insurance" seminar, a course approved by the Automotive Management Institute (AMI).
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AutoInc. Magazine ®, Vol. XLV No. 1, January 1997