Risk Management of Your Fixed Operations

When you realize that fixed operations carry most of the expense costs of dealership businesses, you must also conclude that the prudent risk management of these operations is of vital importance to dealership business success.

As we continue to see an increase in the number of claims, which arise from the fixed operations side of dealership businesses, there are specific questions to be asked and actions to be taken to help minimize risk:

• Fire Loss – Imagine, if you will, a building loss due to fire. Sure you have insurance to cover the building, equipment, and inventory loss. You may even have coverage for the business interruption, but in the case of a loss:
  
  
  • When and where will you be operating?
    
  • Will you be able to locate sufficient space nearby?
    
  • Will your customers find/follow you?
    
  • Will your staff stick with you through the process?
    
  • What will be the logistical costs to your management and business?
    

A few minutes discussing these scenarios, along with real world examples, usually makes for an easy discussion around investing in a supervised fire detection system.

• Vehicle Management – With vehicle accidents and accident benefits driving the cost of dealership insurance, it is important to consider the number of vehicles you have on the road and the exact circumstances around providing services with these vehicles:
  
  
  • Do you operate service loaners or courtesy vehicles?
  • Do you make use of a detailed Temporary Substitute Vehicle Loaner form? Many dealerships are getting away from this practice and/or using a third-party vehicle rental arrangement.
  • Is there a shop or service truck?
  • Who operates these vehicles?
  • How are keys and access to these vehicles controlled?
  • Do you provide a shuttle service?
  • How well do you know your shuttle drivers?
  • Do you encourage driver training and refresher courses?
  • Have you obtained Motor Vehicle Reports (MVRs) for your drivers recently? After all, they and their driving habits are moving your shuttle advertising and customers around town.
• Slip and Fall Risk – As we continue to see slip and fall claims occur at dealerships across the country, it is increasingly important that dealers address the issue with strong risk management practices. Internal inspections should be completed by dealership staff on a regular basis including:
  
  
  • Checking of handrails.
  • Marking changes in elevation both inside and out.
  • Checking and maintaining level smooth surfaces.
  • Ensuring lighting is appropriate and replaced as needed.
  • Using caution (warning) signs at entrances to shops, as needed.
  • Placing and securing floor mats at public entrances.
  • Making use of cautionary signs on wet surfaces.

Often times, dealers in Canada will complete their own snow removal activity. In this circumstance, it is important that dealerships log their efforts and be able to account for their due diligence in the event that an insurer would defend a claim. If you make use of the third-party snow removal provider, have your broker review their policy to help ensure that they carry the proper limits of liability to protect your business.

• Service Contracts – With fewer and fewer billable shop warranty hours available, and stiff competition, it is increasingly important that dealers retain as much revenue from their vehicle service departments as possible. Since a completed operations claim can easily erase the profit from a good day — or even a good week — it is recommended that the Service Manager or Shop Foreman oversee and personally sign-off on as many service contracts as possible. It is without fail that these types of claims arise as a result of a minor mistake on a busy day. The recommended way to safeguard against these types of claims is to have a rigid quality assurance program in place.
• Accident Prevention – While it is not an area typically insured under a garage policy, we continue to see dealers paying high Workplace Safety and Insurance Board (WSIB) rates. Safety is always a concern with accident avoidance is at the heart of risk management. Many dealerships avoid costly rate increases, and even shop shutdowns, with the help of digital surveillance in the shop areas. Camera footage provides a documented history, and often times can reveal that an “accident” was not an accident. Some important questions to ask are:
  
  
  • Do you have a Workers’ Health and Safety Committee?
  • How often do you meet?
  • Do you complete regular self-inspections?

While it is easy to get caught up with auto thefts, and demo and test drive accidents, it is crucial to pay attention to risks generated by a dealership’s day-to-day operations. The success of a dealership’s fixed operations risk management program will likely dictate its insurability on an ongoing basis.