How to Protect Your Car Dealership with Insurance & Security
By Ryan Skidmore | February 5, 2018
Car dealerships are difficult to protect. Your inventory performs best if it’s both easily accessible and visible to the public. The problem is, doing this makes the vehicles easier for everyone to shop for new cars—even thieves. What’s more, car lots are not usually what military tacticians would call “defensible positions”: they tend to have an abundance of large windows, open floor plans, and multiple points of access.
And it’s only worse for large lots with nice cars. The more you have to defend, and the more valuable it is, the bigger the target on your business. That means the threat grows as your company does. This problem (which you might call a “loss prevention paradox”) has plagued dealerships for decades, and many have found themselves on the receiving end of some not-so-trivial crimes.
The good news is there are steps you can take to protect your business, both by putting security systems in place and by using insurance to cover your losses. This guide will cover those steps, and show you what you need to do to be protected.
No one plans to have thieves raid their inventory and cash register, or have vandals damage their property. It still happens though. That’s where insurance comes in. Insurance doesn’t prevent crime or misfortune, but it does shore up against it when it happens. With the right coverage, you can rest easy knowing that any undue loss will be recouped. The trick is to get the kind of coverage you need for your business.
Below are some important insurance definitions pertinent to auto dealers, along with some very important kinds of coverage.
There are two main types of insurance policies for dealerships. The first is “reporting form coverage.” In reporting form, dealerships report their inventory values to the insurance firm on a regular basis, typically either monthly or quarterly. This reporting system allows the dealership (which has fluctuating, irregular inventory values) to ensure the maximum possible value for their inventory, while only paying a premium that reflects the inventory they currently have.
The downside is that dealerships can be penalized if they fail to submit a report or report late. Those penalties come in multiple forms, but a common one is a decrease in payout for a loss. As such, reporting form insurance is a good fit for those willing to do the work and be consistent in order to secure the best possible coverage at the lowest possible premium.
The second type of insurance policy for dealerships is “non-reporting form coverage.” In this version, dealerships submit a single report to the insurance company that indicates the maximum possible value of their whole inventory. Once the maximum value is established, regular reports are not required, as the policy is based on that maximum value. That means the policy requires less upkeep, as the dealership doesn’t need to tally up the value of their vehicles regularly to report to their insurance.
That said, dealerships can still be penalized (or, at least fail to receive full payouts) if they submit a maximum value that is too low. Dealership inventories fluctuate with the ebb and flow of new and used car purchases. Should the dealership end up with a more valuable inventory than what’s reported to the insurance, they stand to eat the difference in the event of a loss.
Additionally, the higher the maximum value being insured, the higher the policy premium. This turns the value reporting into a game of blackjack: dealerships attempt to keep the total value as low as possible, while still covering the inventory they expect to carry.
Dealers Open Lot Coverage
Now for types of coverage. The most basic form of coverage is “open lot coverage” (a.k.a. “auto physical damage coverage”), which covers physical damage to vehicles that the dealership owns. If there’s an accident inside the lot, during a test drive, or some other misfortune that damages some of the dealer’s inventory, this covers the cost of repairs or replacement. The coverage isn’t limited to standard passenger vehicles, either. It can be purchased to cover vehicles like RVs, ATVs, and more. Insurance companies typically require dealerships to ensure the entire value of the inventory they own.
Dealership Physical Damage Coverage
Similar to open lot coverage, “physical damage coverage” is designed to cover a wider breadth of inventory. Intended to cover pretty much anything with wheels, physical damage coverage can be extended to cover motorcycles, scooters, trailers, golf carts, construction equipment, and beyond. This provides a car dealership with coverage for trailers and any type of vehicle a dealership has in its possession to sell. Certain provisions can even be purchased to cover vehicles on the lot for consignment, or part of the floor plan.
False Pretense Coverage
Not all losses happen because of damage, and not all thefts happen under cover of darkness. Most dealers are well aware that sometimes thieves trick dealers into willingly parting with a vehicle, a scenario that doesn’t constitute theft under most basic coverage options. The most common occurrence is when a potential buyer takes a vehicle for a test drive, only to keep it without paying. Whenever a piece of inventory is acquired by a thief via trickery, scheme, or subterfuge, it’s considered “false pretense,” and that’s what this insurance covers.
By purchasing false pretense coverage, dealers can protect against these misfortunes, as the insurance policy will reimburse them for the loss.
Garage Liability Insurance
Lastly, “garage liability insurance” covers legal liability—not for vehicles, but for people. Garage liability specifically covers events that happen in the dealer’s repair garage, and is used in the event there are claims of bodily injury, particularly if those making the claim are visitors rather than employees.
Garage liability insurance can also cover things that happen in the garage, or those involving people who work there. This includes property damage incurred during business operations, as well as discrimination lawsuits from employees, and misconduct by employees (like theft or vandalism of vehicles in the garage). Advanced coverage can even include liabilities related to damage caused by parts acquired at the shop; in other words, in the event, a faulty part results in property damage for a customer, some garage liability policies will cover the liability.
Garage liability is usually defined very strictly in terms of who it covers, and the maximum payout for coverage of a claim, both of which must be determined beforehand by the dealership, and agreed upon by the insurance company.
Even with adequate insurance in place, crimes and accidents are hassles best avoided by any reasonable means. That’s where security measures come in. Some of this advice is very low-tech and easy to implement, though to get the best protection, you’ll want to invest in some more advanced options.
Getting away with a crime largely depends on not getting caught, much of which is dependant on not being seen. Making sure your dealership is well lit, inside and out, will help deter criminals, who tend to dislike doing nefarious things out in the open. While ample lighting won’t stop a determined criminal, it does make a number of them think twice, thus decreasing some of your risks.
Moreover, adequate lighting makes it easier to monitor the property and record events (more on that later), which sometimes results in the later arrest and prosecution of a criminal after the fact.
You can achieve a non-trivial amount of security just by arranging the cars on your lot in the proper fashion. The objective in arranging cars for security purposes it primarily to deny avenues of egress. You want to limit the number of entry points, funneling visitors into specific entrances and exits when they drive in. That way, you can focus your surveillance on those main entrances, and it makes it more difficult for criminals to get in and out with what they want. It even makes it easy for law enforcement to block exits if need be.
Employee Screening and Training
While we’re talking about threats to the business, we can’t overlook internal ones. Many incidents, both accidental and malicious, begin with employees of the dealership. It may be hard to tell, if an employee leaves the key locker open, whether they are an intentional or an unwitting accomplice to a thief, but the effect is the same in the end: someone makes off with a vehicle and doesn’t pay you for it.
Much can be done to avoid problems like this by doing proper employee screening, and by properly training your staff. Start with the interview process by doing background checks, calling references, and carefully evaluating previous employment. Look for both the potential for criminal activity and for how prone they are to making mistakes. Determining beforehand that a prospective employee is trustworthy and reliable will save you a lot of trouble down the line.
Once you’ve hired them, give them the training they need to be aware of the risks, and their responsibility to help mitigate those risks. Teach them that they are the dealership’s first line of defense and that without their due diligence, all of your other security measures are for naught. Then, if it’s feasible, reward employees for being consistently dependable on the matter.
To put it plainly, the more you prune and cultivate your employees, the safer you’ll be.
Keeping valuables under lock and key is important to any business, but it’s all the more critical for a dealership. Make sure you’re employing effective, secure locks on everything that matters. This includes financial records and personal information of customers, keys to vehicles, your entry points, and the vehicles themselves, not to mention any cash that you may have on site. You protect each a little differently, but each needs to be locked against unauthorized access.
Keys to vehicles especially need to be securely stored, as they grant access to the vehicles in the inventory. If keys are kept where just anyone can snag them, you might as well kiss the corresponding car goodbye. Many dealerships these days employ the use of electronic key lockers, ones that have to be unlocked with access codes. This helps restrict access and makes it difficult to force entry to the locker. Make sure it’s closed and locked at all times to prevent theft.
With modern technology taking over business operations of all kinds, cyber security is also vital. Much of your customers’ paperwork and information will be stored on your computers electronically, which are just as vulnerable to hackers (if not more so) than the vehicles are to common thieves. That’s why it’s important to encrypt your information, protect it with quality passwords, and defend the database from forced entry.
Without proper protection, you’re making it easy for hackers to access information. If you don’t feel confident protecting your digital assets, call a cybersecurity firm and get a professional opinion. The cost of a data breach usually justifies contracting with information security experts to defend your data.
At a bare minimum, you’ll want to have some sort of surveillance system. But what you get can depend on how safe you want to be, and how much you can afford.
The first—and most expensive—option is hiring security guards. This puts an actual person on the premises to monitor for suspicious activity and dissuades thieves from entering. The benefits include having a real human onsite in case anything goes wrong. Their physical presence often is enough to deter criminals, and armed guards add an extra layer of security.
There are downsides, though. Aside from the price, security guards are limited in how much of the property they can monitor at any given time. They’re also entitled to lunch and bathroom breaks, which leave gaps in the security. And they’re a liability—it can cost you if they’re injured in the line of duty. Lastly, even with meticulously written notes and reports, a security guard’s account is potentially fallible.
Your next option is a video surveillance system. This can make it possible to observe multiple vantage points at once, to monitor the property continuously without bathroom breaks, and to keep an accurate record of what happens at the dealership. There’s also much less liability, as you don’t have to pay medical bills if a security camera gets shot.
That said, unless you have someone watching the feed, video surveillance is non-responsive. It will quietly observe someone stealing your inventory without notifying you or the police. It can also take hours to sift through footage to find what you’re looking for.
You can combine the two options, video surveillance and security personnel, but it is also expensive. That said, there is a way to get the best of both worlds without having to sell the farm. You can purchase remote video surveillance, which gives you the benefit of security cameras. If you choose the right firm, that surveillance comes with a virtual security guard, who monitors the feed for suspicious activity. Watching multiple vantage points at once, the virtual guard can report any criminal activity to the authorities and protect your business, all without leaving their chair.
The best remote surveillance even has bonus features like license plate recognition, disaster prevention (i.e., the virtual guard notifies emergencies services in case of fire or other emergencies), and video analytics. And it tends to be significantly cheaper than hiring or contracting your own security team.
Achieving Peace of Mind
Running a dealership isn’t easy, and there are a lot of risks involved. With the right preparations, however, you can avoid losing sleep at night knowing that your business is in good hands. The right protection (both financial and physical) can mean the difference between a devastating loss, and rapid recovery after an incident.
Your business is a valuable asset, both to you and your employees. Isn’t it time you gave it the protection it deserves?
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