Weather-Related Claims and Automobile Dealers

Weather related claims have become the most expensive peril for many insurance companies. Is your dealership properly covered?

With spring-like weather finally upon us, in most of the country at least, it is time to consider what Mother Nature may have in store for your dealership this season.

As we are all aware, weather-related claims have quickly become the most expensive peril for many insurance companies. Last year alone say the two of the costliest weather-related disasters in Canadian history with the intense summer storm that caused flooding in Toronto and the devastating spring flooding in Alberta.

This was in addition to flooding in many provinces, historical hail storms, high winds and storms increasing in number and severity across the country. With most regions thawing out from one of the longest, coldest and snowiest winters in recent memory, perilous weather is a factor in all parts of Canada for what seems to be the entire year.

Like it or not, the science of climate change points to the alteration of weather patterns; these changes are difficult for insurers to predict, it is equally difficult to properly underwrite coverage where weather risk is involved.

Losses are continuing to increase and insurers are moving to higher per vehicle deductibles and aggregate limits (limits forcing higher self-insured portions for dealers and consideration of other options to protect their inventory, and ultimately their dealer businesses).

In 2013, we experienced flooding losses at a number of dealerships, both urban and rural, in Alberta, New Brunswick, Nova Scotia and Ontario. Key solutions or suggestions stemming from these experiences included:

• Adding an additional zone to monitored alarm systems for high water monitoring in basements.
• Removing storage from floors to higher shelves in parts departments.
• Storing high value vehicles above ground when possible.
• Implementing a disaster or emergency plan (as timely response is key to minimizing losses with these types of events).

Last year also saw hail losses experienced at a number of dealerships in Alberta, Manitoba, Ontario and Quebec. Hail losses can differ greatly depending on the vehicle brand, location and the size and severity of the hail.

Although the average damage per new vehicle was pegged at $3,150 in 2013, we saw hail damage as little as $50 per car. In contrast, one unfortunate dealership had 80 per cent of its inventory written-off due to the extent of the damage. The majority of hail damage is repairable through paint-less dent repair (PDR). This is a cost-effective process and, depending on the intensity of the storm, many dealerships may be looking to utilize the same service.

How To Help Minimize Risk

Dealers need to consider and plan for weather emergencies – a topic I would suggest every dealer discuss with key staff at your next meeting. These plans should include:

• Designating individual(s) responsible for monitoring weather conditions and communicating emergency plans when needed.
• Preparation of emergency kits.
• Designation of a pre-determined off-site location for inventory parking — parking as many vehicles as possible within your buildings.

Often, hazardous weather will occur without warning, so these plans should be discussed and in place well in advance of any emergency.

Here are some simple steps you can take around your premises today in order to prevent or minimize potential damage and loss during a storm:

• Always backup important electronic data, and store off-site.
• Ensure emergency lighting or generator backup is in working order.
• Inspect light standards and sign posts regularly to insure they are stable and secure.
• Clear debris from lot drainage, storm drains and basins.
• Trees should be limbed and properly maintained.
• Roof drains should be inspected to insure they are free flowing.
• Be aware of neighbouring buildings and signage, which could cause damage to your premises.
• Store expensive parts on higher shelves in your parts department.
• Consider diversifying vehicle compounds (so all of your “eggs” are not in one basket).

We have noted that dealerships across the country are making efforts to store more inventory indoors – this is especially important to dealerships in the traditional hail zones. Such dealerships are also researching and investing in hail canopies and hail nets. These solutions will likely become a common part of the dealership landscape in the future.

Suggested solutions for insuring weather risks will vary, with weather data playing a vital role in properly understanding the risk.

Weather-related claims are an increasingly important factor that dealers must consider as part of their overall risk control efforts.