Lee Cohen, Managing Director of Hamilton Leigh Insurance Brokers explains why managing risk in the sector is now more important than ever.
For over 25 years, my business has worked with franchised dealers and dealership groups, managing their motor trade insurance programmes and the one common factor is the absence of proper risk management understanding, training and controls. UK Motor trade insurance premiums have been in decline since 2004 due to an increase in underwriting capacity coupled with a reduction in major catastrophes. The retail automotive sector has benefited favourably from these ‘soft market’ conditions however this is about to change.
The cost of claims increases year-on-year and despite the former Chancellor of the Exchequer’s announcement in the March budget of a tougher regulatory regime for compensation claims, these costs have escalated to a point where dealerships could find themselves facing significant motor trade insurance premium increases.
Dealerships can no longer rely on ‘soft’ insurance premium rating. The only way to avoid these inevitable increases is to adopt a comprehensive and pro-active risk management strategy, designed to recognise and eradicate hazard and risk in the workplace. Dealerships are far too exposed to accidents and incidents, given the number of sites, vehicles and people they control. There are only 8 recognised motor trade insurers in the UK and should the sector claims continue to escalate at the current rate, this number is likely to reduce, resulting in less capacity and inevitable premium increases.
Dealerships do focus on their brokers negotiating competitive insurance premiums, yet one of the most alarming understated costs faced by dealerships is their ‘retained risk’ vulnerability. This is the costs of incidents that fall within a dealerships’ policy excess and/or for damages deemed to be uninsured. A recent survey carried out by Hamilton Leigh of 50 UK dealerships found that these costs are not properly recorded or apportioned yet they represent on average a further 38% of a dealerships’ motor trade insurance premium outlay. Combined with the cost of unrecoverable policy excesses for ‘fault’ claims, the average retained risk costs increase to 53%, meaning that the average cost of managing a dealerships’ insurance and risk programme equates to 153% of their annual insurance premium outlay. Worryingly though, most dealerships do not record this extremely important data and are therefore largely unaware of its enormity.
The introduction of simple no-cost measures & risk controls will prevent accidents, incidents and claims and go a long way to creating a safer environment for staff and customers. Furthermore, improved ‘retained risk’ management information data will help identify problematic areas of risk and provide the platform to introduce new systems and controls. Don’t wait for problems to happen before introducing new controls. Insurers’ consider proactive risk management essential and dealers that embrace this culture now will receive huge insurer support, avoid future increases in insurance premiums and reduce their retained risk costs.
As part of Hamilton Leigh’s motor trade insurance programme review for dealerships, we offer our Risk Awareness Programme, designed to help dealership staff understand hazards and risk and ultimately prevent incidents from taking place. This programme is recognised by the specialist motor trade insurers and has a proven track record of creating a safer working environment, improved risk awareness culture and achieving significant cost benefits for dealerships.