Auto Service & Repair Businesses: the essential insurance needs

Posted by Matt Simon on Jan 5, 2017

As the owner of an auto service or repair business, it's your job to keep your customers on the road.

But what happens when something unexpected occurs, like a customer that's injured due to a faulty repair on her vehicle, or you discover one of your employees is stealing tools, equipment and even cash from your business?

These are the types of questions that keep many business owners awake at night... but they don't have to.

Working with the right Insurance Advisor to put the proper insurance policies in place will not only protect your business should the unthinkable happen, but you’ll have the peace of mind knowing that you’ll be able to recover when facing a tragedy.

But be careful.

A one-size fits all insurance plan could end up costing thousands, or even millions of dollars, at a time when you need your insurance protection the most.

Even with careful planning and the best intentions, many small business owners make the mistake of choosing a “one size fits all” insurance plan because they assume it’s a great way to save money.

The fact is, every business is unique and its insurance coverage should reflect your uniqueness. That’s why it’s important to work with your Insurance Advisor to determine your risks of loss, what types of coverages fit your specific business needs, and what’s within your budget.

What are your business risks?

Risks are everywhere for auto service & repair shop owners.  Not only are you responsible for repairing vehicles and ensuring they’re safe, you're also responsible for the vehicle while it’s in your possession. Some additional risks that you may face include:

  • Business interruption
  • Damage to a customer’s vehicle while it’s in your possession
  • Faulty parts
  • Faulty workmanship
  • Injuries to your employees or customers inside or outside your premises
  • Property damage due to heavy rain, flooding, fire, etc.
  • Security concerns like theft or vandalism
  • Auto accidents that occur while your employees are test driving customer vehicles

And this list only scratches the surface... most auto service & repair shops face additional risks or threats to their business that need to be thoroughly considered and addressed before a loss ever occurs.

What types of insurance do you need?

Commercial Property Insurance

Weather is hugely unpredictable in Ohio; we’ve had our share of catastrophes from hail events to the aftermath of hurricanes that made their way through The Buckeye State leaving a path of wreckage. 

When fire, theft, wind, hail, lightning or other disasters strike your business, you need to be prepared for what you can control (essentially, how can you respond to help mitigate further damage), and have a plan in place to recover financially from those risks that you can’t control.

A Commercial Property Insurance policy will cover the building you're located in, as well as the contents of your building, including light fixtures, office equipment, furniture, computers and more.

For example, a circuit breaker malfunctions and starts an electrical fire. The fire spreads through the entire building, burning your possessions and the building.

A Commercial Property policy would cover the damages to the building, as well as the replacement cost of the damaged contents.

Tip: the vehicles that belong to your customers, but are in your building or on your premises would not be covered by the standard property policy.  Read on to learn how you should cover this risk.

Commercial General Liability Insurance

Every auto service & repair business in Ohio must have a Commercial General Liability (CGL) insurance policy, more accurately referred to as a Garage Liability policy in your industry.  This coverage would protect you when lawsuits or financial losses occur.

A typical CGL or Garage Liability policy provides coverage for claims of bodily injury or other physical injury, personal injury (libel or slander), advertising injury and property damage as a result of your products, premises or operations.

For example, one of your employees is test driving a customer's vehicle when he rear-ends a family of four.  The vehicle he hit and the customer's vehicle are both totaled.  In addition, the family he hit has varying degrees of injuries and will require medical attention.

Could you be responsible for the injuries?  What about the cost to repair both vehicles?  And don't forget about the legal costs you'll incur just to settle the claim.

Without the right CGL or Garage Liability coverage, you could be facing all of these costs on your own.  However, if you had the correct coverage in place at the time this accident occurred, your insurance company would step in and handle the majority of this claim on your behalf.

The one portion of the claim that the Garage Liability policy would not cover would be the damage to your customer's vehicle.  But not to worry, we'll address that coverage in the next section.

As a safeguard against liability, CGL enables you to continue your normal operations while dealing with real or fraudulent claims of negligence or wrongdoing. CGL policies also provide coverage for the cost to defend and settle claims.

Garagekeepers Coverage

Keep in mind, this coverage sounds similar to Garage Liability as discussed above, but it's entirely different... and should be in addition to your Garage Liability coverage, not thought of as a substitute for Garage Liability coverage.

So what is Garagekeepers Coverage?

Because your industry is unique in the sense that you're taking possession of your customer's property (the vehicle) for the period of time that it's being serviced or repaired, you have a very unique, but very real risk:  what happens if the vehicle that belongs to your customer is damaged or stolen?

In our example above, how to you make sure you're covered for the customer's vehicle that's totaled while being driven by one of your employees?

You've probably guessed by now, but this is precisely what Garagekeepers Coverage is designed to provide... coverage for your customer's vehicles that are left with you for service or repair.

When reviewing this coverage with your Insurance Advisor, there are 3 options available:

  1. Legal Liability - coverage is provided for your customer's vehicle only when it's damaged or stolen as a result of your negligence... essentially, you or your employees did something that directly caused the damage or theft of your customer's vehicle
  2. Direct Excess - this option can cause friction between you and your customer because it only provides coverage IF your customer wouldn't have his own insurance coverage.  If your customer does have insurance, your coverage would respond only if the amount your customer could collect under his own insurance policy is not enough.
  3. Direct Primary - if you select this option, your customer's vehicle is covered while in your possession regardless of whether you were responsible for the damages or theft.

Why would anyone select Direct Primary?

Those businesses that want to maintain the goodwill they've spent years building with their clients often elect Garagekeepers Coverage on a Direct Primary basis.  By doing so, they know that regardless of the reason the customer's vehicle was damaged or stolen, the business's insurance policy will reimburse the customer so he doesn't need to make a claim on his own policy.

Additional insurance coverage options all auto service & repair businesses should consider

Business Income Insurance (also known as Business Interruption Insurance) is an option that you may want to consider, as it’s designed to cover the loss of income you would suffer after a disaster. 

Business income coverage protects against the loss of income a business suffers when a covered loss causes damage to the insured premises.  The loss doesn't have to cause the business to shutdown entirely.  Even a covered loss that causes the business to slow down can be covered with business income coverage.

Equipment Breakdown Insurance is another important policy for your auto service & repair business, as you rely almost entirely on certain pieces of equipment to operate your business. And without functioning equipment, you're probably losing income.

Privacy Liability & Data Breach Insurance has gone from a little known option in the insurance world to an absolute must-have given the number of data breaches, and the costs associated with even a small breach.

Consider the amount of personal information you collect, store and use in your business - think credit card transactions.  This information could be in digital format, hard-copy, or both.  Now imagine opening your doors to many of the most unscrupulous individuals for the next six months, and allowing them to access and use any information they want.

Sounds crazy, right?

But this is exactly what’s happening in our digital world.  Breaches occur to the largest, and smallest businesses… no one is immune.

A data breach often goes unnoticed for months, and by the time it’s discovered, the personal information stolen has already been used to wreak havoc on the victim’s identity and finances.

It’s really not a matter if your business will suffer a breach, only a matter of when.  Without Privacy Liability & Data Breach Insurance, you’re on your own to navigate the increasing number of local, state and federal regulations you must comply with, in addition to the legal costs and damages you’ll suffer.

Conclusion

This is only the beginning to the insurance coverages that Ohio auto service & repair businesses need to consider. However, if you have these policies in place, you can form a solid foundation of protection for your business.

Finding the best insurance policy for auto repair shops in Ohio, and figuring out the types of coverage needed to protect your business, can be confusing, time consuming and difficult.

However, the right insurance protection is still critical to the success of your business.  Without it, you're one claim away from being out of business.

And remember, not all policies are created equal.

You probably wouldn’t go to your eye doctor instead of your dentist if you were having a toothache, right?  Just because they’re both doctors doesn’t mean they have the same skillset.

Just the same, you need an Insurance Advisor that understands your industry, your risks of loss, and how best to protect you and your business.

We can help.

We know the industry, we understand your needs, and we work with multiple insurance companies so we can deliver the insurance solution that’s perfect for your business, and your budget.

In addition, we can also provide you several services that will help position your business for the best insurance premiums offered by the nation’s strongest insurance carriers.  Specifically, we can:

  • Get you your own subscription to 'Auto Insights' to help you prevent injuries, deal with environmental exposures, avoid theft, and more
  • Provide you with data security resources designed to help keep your data, and your network, safe
  • Perform a data breach risk assessment of your business to help identify areas of weakness, and offer solutions to mitigate the exposures
  • Offer safety manual material so you can mitigate your risks of a claim occurring, reduce the number of employees being injured on the job, and comply with OSHA requirements
  • Review our 86-point 'Property Inspection Checklist' to help you prevent claims to your building that you're capable of controlling

The bottom line is, when you have confidence in your business insurance, you have greater peace of mind knowing that you can keep working to generate revenue, even when disaster strikes. 

To get started on your customized solution, contact one of our Licensed Advisors, or Request a Proposal and we’ll get to work right away.

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