on the cover

by Stephen Pallas TIADA Director of Marketing and Communications

Independent automobile dealerships in Texas are a vital part of the state’s economy. They employ many people and help drive sales of vehicles, which, in turn, help the state generate revenue. However, auto dealerships in Texas face many challenges, including inventory management, marketing, and sales. A critical area that often gets overlooked is insurance. Many auto dealers in Texas assume they have adequate coverage, but often, this is not the case. We spoke with several insurance company representatives, and they all conclude that it is essential to regularly revisit your policies to make sure they are up to date.

“Some things lend themselves to regular check-ups, and some things do not,” said Ann Mullen, who is the President of Mullen Insurance Agency, Inc.

“Insurance too often falls into the latter category. With the speed of today’s life and our day-to-day activity, it can be too easy to sign the renewal paperwork, write a check, and move on. That works very well for a lot of dealers for a lot of years. As long as your insurance needs remain unchanged, it is likely your current policy is providing the correct protection—likely, but not positively. And the scary part is that you will not realize where the coverage is lacking until you have a loss jeopardized by inadequate protection. If you have not recently done so, the best time to review your insurance is now.”

With that in mind, we’ve compiled five reasons why auto dealers in Texas need to review their insurance policies.

Dealerships in Texas face significant liability risks.

Customers can slip and fall on the showroom floor or test drive vehicles, which could result in lawsuits. Additionally, customers can cause accidents while test driving vehicles, leading to potential liability claims against the dealership. Without adequate liability insurance, auto dealerships in Texas risk serious financial consequences.

Liability risks can arise from a wide range of situations that occur in auto dealerships, including showroom accidents, product liability claims, and even employee behavior. Liability coverage protects against these risks, ensuring that the dealership is prepared for any claims that may arise. Adequate liability coverage is essential for auto dealerships in Texas to ensure they can continue to operate and meet their financial obligations.

Property Damage Dealerships also have small or large inventories of vehicles that need protection. These vehicles can be damaged or destroyed by natural disasters, vandalism, theft, or accidents. If an auto dealership does not have adequate insurance coverage for these events, it could result in significant financial losses.

Property damage coverage can help protect against a wide range of risks, including fire, theft, and vandalism. With adequate coverage, auto dealerships in Texas can be confident in their recovery from unexpected events and continue to operate without experiencing significant financial losses.

This is especially important for independent dealers in Texas, as Andy Harvey, Chairman and CEO of CP Insurance Associates observes, “Over the past 20 years, the Buy-Here-Pay-Here market has grown nationally,” he said. “However, Texas remains the largest marketplace for the BuyHere-Pay-Here dealer.” And that is a refrain we heard in several conversations with insurance professionals we spoke with.

“One common area of property protection that is overlooked by the buy-here-pay-here (BHPH) dealers is insurance coverage protecting the vehicles held as collateral for the installment contracts,” said Kirk Saunders, Director of Sales at American Risk Solutions. “If the borrowers do not provide the physical damage insurance as required by the installment contract, does the BHPH lender have the ability to utilize a Collateral Protection Insurance (CPI) policy to protect the vehicles held as collateral? Are the CPI policy and CPI borrower forms approved by the Texas Department of Insurance? Is the CPI rate adequate to cover the expected losses? These questions are vital to the risk management success of the BHPH lender.”

Independent dealers, like virtually all other businesses, also face cybersecurity risks. As dealerships increasingly use technology to manage inventory, sales, and customer data, they become increasingly vulnerable to cyber attacks. A data breach could result in the theft of customer information, including personal and financial data. Such a loss typically leads to lawsuits and/or regulatory penalties, which are likely more costly than the insurance necessary to protect dealers and their clients.