As it turns out, the old adage “an ounce of prevention is worth a pound of cure” applies in the context of insurance as well as in medicine.  There is, however, a corollary to that adage.  In the context of rising insurance rates, an ounce of prevention can sometimes be worth a ton of cure.

In the past twenty-four months, most companies have experienced as much as an aggregated average increase in the cost associated with standard property and casualty (P&C), workers’ compensation, and accident and health (A&H) insurance coverage of 300%.  As an industry, automobile dealerships have been among those hardest hit by this broad increase in insurance cost.  In some instances, the cost of workers’ compensation insurance alone has increased 700% over that period of time ( 2-1/2 times the average of all other industries).

Remarkable, despite these staggering insurance increases, automobile dealerships, when viewed as an industry, have done very little to manage these costs in comparison to other industries.  The reasons for this apparent indifference are varied and widespread but probably relate more to the origin of the increases and the operating history of the industry than to any apathy toward the rising costs on the part of the ownership and management.

Gaining historical insight into the past patterns of insurance costs experienced by the industry only serves to confuse the issue further.  Historically, in comparison to all other industries, the automobile dealership industry has not experienced abnormal losses in the areas of either workers’ compensation or P&C.  Accordingly, it’s fair to say that based upon the industry metrics for workers’ compensation and P&C, automobile dealerships have been very average – no worse nor better than virtually every other industry.

So why has the automobile dealership industry been hit so hard with rising insurance costs and why is it apparently doing so little about it?  Not surprisingly, the answer rests to a great degree in the old adage set out above.  Unlike the ‘hard hat’ industries that have historical experience in developing comprehensive loss prevention programs and practices, members of the automobile dealership industry have virtually none.  In most instances, the members have no quantifiable loss prevention program, no internal claims management function, no internal risk management function, no safety training programs and poor loss history.  In fact, most of the automobile dealerships we surveyed have never received a written evaluation of risk or loss prevention report from their insurer.

The level of direct benefits (cost savings) associated with such risk management and loss prevention programs are a direct function of the scope of the implementation of the programs.  In those instances where the programs are integrated into each operating facet of the business, average first year annual cost savings range from 3%-27%.  In addition to the direct insurance cost savings, such programs can reduce inventory damage and theft and improve employee productivity due to a reduction in down time associated with injuries.