Are you covered?
Overland Park, Kan.—It’s been a busy year for natural disasters, with wildfires, floods, tornadoes, and earthquakes ravaging several of the regions served by Parts & People.
If your business was affected by a catastrophe, hopefully you found you had adequate insurance coverage. But if you escaped harm, how can you make sure you’re protected if disaster strikes? Getting a shop building repaired or rebuilt is just one concern an owner or manager has in getting back to business, said David Willett, general manager of Automotive Industry for Intrepid Direct Insurance.
Business interruption coverage replaces lost income
Business interruption coverage can replace lost income to the shop and technicians while the facility is being repaired or rebuilt, Willett said.
“Many times, it’s where the major part of the loss is felt, even more so than replacing the building. But the Extra Expense Actual Loss Sustained coverage is important, as well, because in the garage business, your main concern is wanting to take care of customers and your employees. If you’re not working, you can’t pay employees, and you can’t take care of your customers.”
The extra expense coverage allows a business to do what it takes to keep working on cars, whether that’s procuring a generator or renting another location, he said. But some companies’ policies require a waiting period of 24 to 72 hours before a business interruption claim can be made.
“A waiting period is a deductible,” he said. “And I think this defeats my belief on good risk management and good insurance for garage operations. You want to attack the loss as soon as it happens.”
A business interruption can occur not only directly from a fire or a storm, but from technicians’ tools or equipment being damaged or inaccessible. So Intrepid also covers those instances.
“A lot of other companies also have a limitation of $10,000 per employee. I don’t know too many techs who have a box that’s not over that limit, so we vary the employee tool limits to whatever they need.”
Willett said the coverage, which also provides for vandalism or theft, is an attractive employee retention tool, as it would cost employees eight to 10 times as much to insure their tools on their own.
Infrastructure can impact shops not directly affected
Even if a shop is outside a tornado’s path, its electric service can be interrupted by widespread outages. Or it may be outside a floodplain, but heavy rainfall backs water up through a sewer drain. Business interruption coverage protects against such instances.
“I don’t think you’ll get an argument that utilities are in need of renewing infrastructure, technology, and care,” Willett said. “There is concern about the electric grid being fragile, about water and gas pipes being fragile. Even the internet, which is considered a utility in our particular policy. I don’t know how our industry would function without the internet — how do you get on-demand OEM repair information?”
Picking up the pieces in the aftermath — cleanup and rebuilding
The cost of pollution cleanup after a catastrophe is often underestimated, Willett said. Although EMS is first on the scene protecting life and limb, “that next morning, the first people at your door are the EPA. They’re the ones who are going to be making sure the automotive business has identified all the pollutants in your place and they are taken care of and accounted for. It’s often shortcut and thrown in as an additional coverage, quite often with limits of $25,000 or even lower.”
Intrepid recommends $100,000 coverage for environmental cleanup, especially as there are now more electric vehicles (with lithium-ion batteries).
A coverage known as “building ordinance and law” provides protection against codes that have been upgraded since the building was built, such as requiring compliance with the Americans with Disabilities Act.
“Or there is a law in certain areas that says you now have to use specific wind-resistant screws in the roof so it’s not as susceptible to a wind loss the next time it comes around, or that certain materials are not allowed to be used anymore.”
For single-shop operators and smaller MSOs, Willett said buildings are either a key part of the retirement plan or of the next generation taking over the business. Extended replacement cost coverage from Intrepid provides an additional 25-percent limit on buildings to mitigate the risk of having enough coverage at the time of loss.
“I think it is really important to have that buffer, partly because we also include the foundation, excavation, backfilling, and architect fee. That is not a standard part of everyone else’s contract. If you get a fire hot enough to burn one of our buildings down, it probably has some juice to it, and it’s probably going to crack the foundation.”
After a widespread catastrophe, rebuilding costs can rise because of a shortage of labor and materials, so the extended replacement cost coverage helps pay for those.
Most insurers are cognizant of the goodwill associated with making big-loss payments quickly. But policies with a coinsurance clause can take longer to settle because of necessary calculations, Willett said. (A coinsurance clause requires an insured to prove they are paying a premium on an insured limit, usually 80 or 90 percent, before the loss is paid. Eighty-percent coinsurance on a $500,000 property, building or contents, must be insured for at least $400,000, or the settlement will be reduced for even a “smaller” loss of $30,000.) Thus, it takes much time and effort after a loss to prove what the limit should be.
“When you don’t have a coinsurance limit, which is how we do it, you don’t have to evaluate it. You prove they have the $30,000 or $40,000 loss, and you pay it. It’s a lot more immediate process, and there’s not the administrative nightmare for the garage owner and the insurance company having to prove anything. There’s a lot less noise and friction — it just gets paid.” q