Protect Your Assets: BHPH Insurance Considerations

“With the continued growth of the buy here-pay here dealership business, issues involving customer relations and protection of your assets will continue to evolve.”

 
The American public has become very enamored with the idea of one-stop shopping. One has to only look at the success of stores like Wal-Mart and Target, where the customer can purchase their groceries and dry goods under one roof, to see that the simpler the task is for the public the higher the return. Our current economics has also encouraged people to move to away from high end to discount stores. This same concept can be applied to the purchase of a vehicle. An increased number of dealerships are trying to attract that type of consumer who doesn’t want to have to go to a bank or credit union for financing to shop for a vehicle, or is unable to obtain traditional financing. The one-stop shopping experience where the dealer approves and carries the vehicle financing has lead to the success of the “buy here-pay here” dealer.

Although the concept itself may be a good one for the consumer, especially those with compromised credit; there are many risks, beyond the typical car dealership exposures, for the dealer themselves. The BHPH dealer is also operating as a finance company by directly providing financing to its customers and not just arranging financing through a lending institution. The lending is secured by the car sold to the customer and as a BHPH dealer; you should look into ways of protecting your collateral.

There are ways that these types of dealers currently try to mitigate their risks including high markups. Dealers typically charge high interest. Each state, of course, sets up maximum allowable rates. Although this may appear to be very lucrative financially for the dealer, these steps alone do not fully protect them, since many customers become delinquent on their accounts, and some vehicles must be repossessed in the event of a default. Some dealers use GPS locators to keep track of their assets and vehicle starter disablers when a customer is delinquent in making their car payments.

There are other effective ways that the dealer may choose to protect itself by purchasing various insurance products. One of them is by purchasing collateral insurance to cover your assets once the vehicles are sold. This type of insurance assists the dealer by making the physical damage insurance requirement to be part of the finance contract.

The premium becomes part of the finance payment so the dealer does not have to be concerned about his customer letting the insurance lapse after the initial purchase. This type of insurance covers repairs on the vehicle so that there is less chance that in the case of physical damage the car would need to be repossessed. Having this option for the dealer may make the difference between a sale and a lost opportunity. With some insurance companies, this insurance coverage can be obtained electronically during non-standard working hours so you don’t have to rely on a customer coming back to the dealership after obtaining their own insurance.

There are advantages for the customer. The approval for this insurance can be quick and may not require any driving record check. They also get to drive off the lot with insurance without having to have the extra cash required to purchase it on their own. The insurance gets paid off as part of the contract so only one payment needs to be made. In many cases the fact that the customer does not have to come up with the money out of pocket allows them to put down a larger down payment, which benefits both parties.

Another insurance product available to financing companies is single interest coverage usually referred to as BSI (Blanket Single Interest) or VSI (Vendors Single Interest). This coverage provides protection to the lender for physical damage to a repossessed vehicle for which no insurance coverage is available through your customer’s insurance. There seems to be a large percentage of BHPH customers that have their own coverage cancelled or simply allow it to lapse and this single interest coverage will protect only you and not your customer. This insurance is sold to you and priced based on either the outstanding value of your existing finance contracts or projected new sales and finance contracts and not purchased based on each individual car sale.

In some states, a lessor may be held responsible for damages occurring from a lessee’s negligent action. Can this apply to a BHPH dealer? It may, depending on your state’s laws and regulations and the wording of your contractual agreement with your customer. It certainly can apply to any of you that are providing Lease Here Pay-Here to your customers.

You should have this reviewed by your attorney to determine your potential exposures and discuss with your insurance agent the coverages available to you to provide protection in these situations. This type of coverage is usually referred to as contingent liability insurance.

With the continued growth of the buy here-pay here dealership business, issues involving customer relations and protection of your assets will continue to evolve. Those of you that are fortunate enough to prosper from this business will continue to see an increase in the value of your outstanding finance contracts and should regularly review your business insurance with your agent for new insurance products and insurance tracking systems that may become available for your business. In addition to insurance products, keep up to date on equipment that will help minimize your losses such as vehicle tracking and vehicle disabling systems.

Equipment Malfunction: Who Pays When Stuff Breaks Down?

Appeared January 2012 - volume 9 – issue 1 – page 34
Dealer Business Journal

“…help the business minimize their most important risk of all; their reputation with their customers.”

Most businesses carry Commercial Property Insurance, but that does not cover all scenarios that may cause a disruption to your business. One of the major risks that are not normally included in your property policy, and not considered by most insureds, are losses caused by equipment breakdown. For any of us that have had a power surge or a lightning strike in our personal homes we are very aware of the damage that electrical issues can cause to all of our appliances. This same type of an occurrence in a business can have major repercussions and it is important that your business be fully covered for these types of losses as well.

Equipment breakdown coverage is meant to fill the gap between your property insurance policy and those risks that may cause business interruption. This may include coverage for refrigeration systems, motors, compressors, computer systems and even security and fire-detection systems. This policy provides coverage for the accidental loss of both mechanical and electrical equipment used for the generation, transmission or utilization of mechanical or electrical power. In the case of auto dealers some of the covered items in this policy may include air conditioners, motors and generators, pumps and compressors as well as computer and phone systems and your shop’s diagnostic equipment. Any loss of this equipment can have a large impact on the business and may not be covered under the commercial property policy. This added Equipment Breakdown Policy provides coverage, not only for the equipment loss, but also the lost income, the expense of getting back in business and any necessary temporary equipment to keep your business running during the restoration period. In addition this policy would help the business minimize their most important risk of all; their reputation with their customers.

Many of the losses reported that would fall under this type of policy involve very costly repairs such as air conditioning compressors and air compressors seizing up due to lack of lubrication or a voltage fluctuation that causes telephone system terminal boards to burn out or automotive diagnostic systems to become inoperable. These losses run in the tens of thousands, even hundreds of thousands of dollars. Half of all equipment failures are caused by surges or electrical noise. With the ever-increasing use of electric technology to run motors and other equipment, the cost of repairing these systems has been escalating at a rapid rate. A loss to a central air conditioning system caused by an electrical surge cost an insured over $12,000 dollars just for system repairs, not including loss of employees’ time and customers. A service station owner incurred a loss to its diagnostic equipment and phone and security systems in excess of $40,000 caused by a power surge to his building.

The advantages of having an Equipment Breakdown policy are not just those that occur after the accident, but also include the proactive features these type policies have to prevent the loss or accident in the first place. Most importantly are the risk control attributes that are included. When you take advantage of this type of policy you receive assistance in setting up inspection schedules and evaluations along with the identification of potential hazards and creating a preventive maintenance program. The insurance company representatives assist the policyholder with government compliance issues and the filing of required certificates. The insurer can also assist in the case of a loss with helping find replacement parts and other resources to help you get your business up and running in a timely manner. The business can be provided with valuable safety checklists such as a document defining the correct way to start up a boiler or how to qualify for “green” certification.

As with many other business decisions the more proactive you can be in preparing yourself with the correct coverage before the loss, the quicker reaction time you will have in recovering from the loss. Reviewing the need for this coverage with your agent will be time well-spent.

ARM’s Featured Programs

 

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Employee Theft: Mitigate Losses with a Few Easy Steps

John Krivacsy
Average rating:
Article count: 18
Views per article: 265

John Krivacsy is a senior vice president and Claims and Loss Control Manager with Automotive Risk Management and Insurance Services, Inc., (ARM) based in Stockton, Calif. To reach Mr. Krivacsy, send an e-mail to jkrivacsy@armonline.com.

ARM Online – Stockton, CA
jkrivacsy@armonline.com
800.224.6363   

Appeared November 2011 – volume 8 – issue 11 – page 38
Article has been viewed 210 times.
– 3 ratings

Employee dishonesty can be as blatant as actually stealing money directly from your business or as subtle as giving friends and family large discounts on your products.

We would all like to think that we are a good judge of character and that the people we surround ourselves with share our same values; but unfortunately that is not always the case.

It is impossible by simply looking at someone or interacting with them during a one-hour interview to do a true assessment of their character. One must be prepared for the liability of employee dishonesty in the workplace, no matter how inconceivable we might think that possibility is. Employee dishonesty can affect your business in multiple ways and the business owner needs to be wary of it and prepared to handle the consequences. Check with you insurance agent to determine if purchasing employee theft insurance will be beneficial to you.

Employee dishonesty seems to be more prevalent in small businesses where employees get treated as if they were part of a family. We give our trusted employees more access to our business documents thus providing them more opportunity to abuse that privilege. As the economy continues to struggle the incidence of employee dishonesty is rising. Some employees feel that their loss of compensation or reduction in benefits entitle them to receive other means of compensation and they may resort to illegal activities that they would not have previously considered.

Where possible, shifting employee responsibilities among fellow employees can be an effective way of preventing employee theft and discovery of any theft activity currently occurring. Studies have found that unhappy and or bored employees are more likely to attempt some type of theft from their employer. Rotating responsibilities and encouraging new opportunities within your company will also keep your employees challenged and possibly eliminate boredom.

You should perform reviews to determine your employees’ attitudes and any lifestyle changes that may be beyond their financial means of income. Performing background checks on new employees and routine background checks on current employees can be an effective method of preventing and discovering employee theft activity.

As a business owner you need to be proactive in putting deterrents in place to protect yourself from this form of theft. One of the most-effective deterrents is to communicate your company’s policy and follow through when the policy is violated. Ensuring that all employees are notified in writing of what will not be tolerated and what actions you will take to discover and punish these dishonest activities goes a long way.

For instance, if your employees know that you will be auditing your own books monthly, that in itself would be a reason for them to reconsider taking any illegal actions. If you have a zero-tolerance policy with your employees, it is imperative you abide by that policy the first time there is a violation. It is also important that when these dishonest activities do occur that you communicate the infraction to the rest of your employees and let them know what action was taken. When the opportunity arises to assist in the parts, service, sales or accounting departments by filling in for a sick or vacationing employee, take it. You having a complete understanding of how your business operates will allow you to recognize any problems in your procedures, or with a specific employee, more quickly. Also, installing computer software that controls and monitors who is accessing company data will provide you with information to recognize any abnormalities.

Employee dishonesty can be as blatant as actually stealing money directly from your business or as subtle as giving friends and family large discounts on your products.

Recently, one woman working at an auto dealership was convicted of using $645,000 of company assets to pay her personal credit card bills for the last 10 years. The dealership was not able to recover all that money and it was a huge loss both financially and emotionally. Having an audit plan in place where more than one person is looking and reviewing your financial data can go a long way to protect yourself from these types of incidents. Also, have an independent auditing company perform an audit of your financial records and carry out a physical inventory annually. Company checks, requisition forms for supplies and equipment and all other activities requesting the use of company funds should require more than one signature for authorization.

Of course, there are physical ways that you can minimize your losses also. Other deterrents to employee dishonesty include the use of security cameras, access limitations to your property and inventory, and even something as simple as asking your employees to park away from your building. These actions make it more difficult for an employee to execute any physical removal of property from your business. Although most businesses run their operations with computers, there still seems to be the occasional need for faxing information and documents that may contain financial information about your company or one of your customers. Make sure access and use of your fax machine is restricted and it is kept in a secure area away from general traffic areas used by your employees and customers.

Employee theft can be a big problem if preventative measures and controls, such as those mentioned above, are not established. Protecting your business, and its employees, by controlling employee thefts before they happen is important to the survival of your company.

Don’t Let Driver Exclusions Leave You Bare

Critical Issues Caused By Driver Exclusions

Words can be a very powerful tool of communication, but it is important that the correct word is chosen to convey the correct information.  One word can change the whole context of a sentence or a contract.  It can also be the difference between whether you have insurance coverage in a certain situation or not.  When entering into an insurance policy contained in a  “driver exclusion”, understanding the difference between the words contained in a ”driver exclusion” is vital to ensure you fully comprehend your policy coverage.

What is a  Driver Exclusion, and How Does it Effect Your Insurance Policy?

Since car dealerships can have many drivers, some with undesirable driving records, your insurance company many be requiring that a “driver exclusion” endorsement be added to your policy or a “driver restriction” becomes part of your business practice.  Basically, a driver exclusion is an endorsement added to your insurance policy which is signed by you and the individual named on the exclusion acknowledging that your insurance will not apply under certain circumstances described in the endorsement.  It is important to note that the absence of coverage does not take away responsibility from you or the excluded driver if the excluded individual is involved in an accident.  These forms can vary greatly among insurance companies and each can have a different effect on your insurance policy and should be reviewed with your agent and your attorney.  Some states have determined that a driver exclusion endorsement continues to be effective into your renewal policy without executing a new endorsement.  Make sure that if an excluded employee’s driving record has improved that you review this with your agent any time during the policy period, and especially at time of policy renewal.

Because driver exclusions are effective in most states in changing your insurance coverage, they are added to your policy by special endorsement and become part of your insurance policy. Although the titling of these endorsements is very similar, the wording contained in the endorsement can vary greatly and have a carrying effect on your coverage.

Some endorsements show titles such as “Driver Excluded”, “Driver Exclusion” and “Named Driver Exclusion.” Titles such as these would make you think they all would change your coverage the same exclude coverage for a specific employee. For the endorsement to be effective in its intent, it will also include wording eliminating coverage for the dealership and all named insureds.  Let’s take a closer look at some of the endorsement wording to see how they may impact your business. Remember, each claim situation and your state laws and regulations many change our general explanations.

Understanding Driver Exclusion Endorsements

The following are excerpts from one driver exclusion endorsement.  “The person indicated below is excluded from coverage.. when driving any motor vehicle… and this exclusion applies to all insureds.”  This endorsement appears to remove coverage only when the person named in the endorsement is driving.  But it refers to any motor vehicle and does not address ownership of the vehicle.  This would lead you to believe that the exclusion applies to your dealership vehicles, customer vehicles, vehicles owned by the named person and any other vehicle they may be driving and potentially involves your business.

Another driver exclusion contains the following: “The person designated… is excluded from any coverage… when operating any motor vehicle… applicable to all insureds of this policy… whether or not the operation as with expressed or implied permission…” This is similar to the previous example, but not exact. In this endorsement, they use the term “operating” instead of “driving” and add a condition about permissive use. Is “driving” different than “operating?” If one of your mechanics named in a driver exclusion is showing a customer why they are having a certain complaint with their car by starting their car, opening a door, hood or deck lid, will this be considered “operating?” If any of your mechanic’s actions cause damage to the customer and your insurance company considers his actions as “operating,” then you will not have insurance coverage for that incident. This endorsement sample has added wording addressing permissive use clarifying that you giving an excluded driver permission to use a vehicle, or the excluded driver driving without your permission, will not void the endorsement.

A Different Approach – Beyond “Driving” and “Operating”

Although his next endorsement example does not specifically state that it will not cover the policyholder, it does state that this insurance does not apply and the assumption can be made that it will not apply to any insured when an excluded driver is involved in an accident. The following wording is quite different from the previous two examples and seems to broaden, beyond “driving” or “operating”, the types of situations that will not be covered. The wording is: “This insurance does not apply… arising out of the ownership, maintenance or use… This exclusion will also serve as a rejection of the Uninsured Motorist, Underinsured Motorist …and Personal Injury Protection…” In this situation, you have a good employee with an unacceptable driving record and your insurance company is requiring this exclusion. You want to keep the employee, realizing they are now excluded per the endorsement and you reassign them to detailing or washing vehicles. While performing their duties, they injure a customer. You may not have coverage if your insurance company considers this “maintenance.”

The example endorsement wording contained in the above paragraphs is actual extractions from endorsements currently used by insurance companies that are writing insurance for auto dealerships and various garage businesses. These endorsements usually state that they modify insurance provided under the Garage Coverage Form and Business Auto Coverage Form. Both of these coverage forms contain coverages other than your liability coverage, such as Garagekeepers Legal Liability, Physical Damage to your inventory and other endorsements for Auto Med Pay, Uninsured Motorist, No Fault and many other optional coverages that can be effected by a driver exclusion endorsement. Make sure you have your insurance agent tell you what coverage and endorsements will be effected by a driver exclusion endorsement.

Alternatives to Driver Exclusions

Since a major part of your business involves the use and driving of automobiles, a driver exclusion naming any of your key employees can have a significant effect on your daily business activities and on your financial stability if an excluded driver is involved in a not covered claim.  What can you do to avoid having driver exclusions added to your policy??

Ask your insurance agent to specifically find out why your insurance company wants to exclude an individual so you and the individiual can determine if there is anything that can be done to remove the insurance company’s concern and avoid having the exclusion on your policy.  Have your agent research other insurance companies to determine if they will demand the same restricitons excluding certain drivers and verify any significant change in pricing. If you prefer to stay with your current insurance company, suggest a driver restriciton form rather than a driver exclusion endorsement.  Typically, a driver restriction form is not part of your policy and does not effect your coverage.  It is used as a management and vehicle control tool in restricting the driving activities of selected employees that have undesirable driving records.  The form requires the signature of the concerned employee and the policyholder, both agreeing to its terms.  Depending on the individual’s position with your company and the

types of driving violations, the form can restrict all driving or specifically list various situations describing when the individual is permitted to drive.  This type of in-house agreement has been acceptable by some insurance companies in lieu of enforcing a driver exclusion endorsement.

Maintaining Optimal Coverage for Your Dealership -

Driver Exclusions can be Removed!

Implementing a formal loss prevention program that includes a driver training program, encouraging defensive driving for your employees and monitoring employee motor vehicle records may also help convince your insurance company to remove driver exclusion endorsements from your policy.  In some situations, you may also want to install GPS tracking devices allowing you to track your employees’ driving habits and destinations.

The Insurance Doctor on

Driver Exclusion:

Do you have one of these

on your insurance policy?

If any of these suggestions are successful in removing driver exclusion endorsements from your insurance policy, they are worth your efforts and cost in keeping your insurance company from eliminating coverage for you and named drivers.  Your insurance company may still require driver exclusion endorsements for some individuals with very poor driving history.  If this happens, make sure the endorsement is limited in its restrictions and specifies the coverages effected.

Email Marketing & Social Media Success

Engagement Marketing: Email+Social=Success

Time	Thursday, August 18 · 8:30am - 10:00am
Location	SFSU Downtown 835 Market Street Rooms 675 and 676 San Francisco, CA. 94103

Building lasting relationships with your existing customers and members drives business success. Making that happen is called “Engagement Marketing.” Having an Engagement Marketing strategy is the key to inspiring your most passionate customers and advocates to: have conversations with you and fellow customers, share stories and opinions, and share your content with their own social circle. In this seminar, you’ll discover the three components that lead to Engagement Marketing success:

? Providing an excellent customer experience
? Making connections that engage your audience and enable an ongoing dialog, and
? Using social media to continue the dialog and engage a broader audience.

Come see models of how other small businesses, non-profit associations, and organizations combine email marketing and social media marketing in order to build connections, monitor feedback, share interesting content and drive toward business success.

Claims Reporting Timing is Everything

Appeared June 2011 - volume 8 - issue 6 - page 42

“The fact remains that if your delay to report a claim in any way affects the insurance company’s ability to investigate and settle the claim, you could be held accountable.”

 - Claims Reporting Timing is Everything

John Krivacsy

Average rating:             Article count: 12
Views per article: 193

John Krivacsy is a senior vice president and Claims/Loss Control Manager with ARM. To reach him, please send an e-mail to jkrivacsy@armonline.com.

ARM Online – Stockton, CA
apps@armonline.com

Social Media and Website Design

Building a Successful Niche Social Media Website

By now it can be assumed that most everybody already understands the importance of social media, and incorporating it into a web design. To get the attention of your viewers to your social media links you need to use both strategy and good taste. To design a good call-to-action social media icon/link you need to think about its positioning, its color, approach, style, size, everything. You also need to keep in mind that you want to get the attention of your viewers to the social side of your website without distracting from what’s important, such as the content.  A good social media link is one that you should have no trouble finding, and when you find it, you like what you see.

Visit ARM online for an example of how to successfully integrate social media links on your next project.

How to Use Google Analytics to find the best time to send emails

Want to know the best time to send your emails? Google Analytics can help!

…the day of the week and hour of the day at which marketing emails are sent is often based on little more than the gut feeling of the email marketer and the performance of previous emails, rather than real data.

Determine your own optimum mailing time using Google Analytics

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