Insurance. For many business owners, protection against liability, fire and medical claims is a 500-pound gorilla that can catapult what otherwise would be a great annual profit-and-loss statement into the red zone.
Tire dealers could be hammered with premium hikes of 100, 200 or even 300 percent, warn some insurance insiders. Yet several tire dealers contacted by Tire Business say that although insurance costs are a key issue, they've weathered the storm with increases of as little as 5 percent annually.
``I learned long ago you've got to keep tabs on your insurance bills,'' said Lee R. Bruce of Bruce Tire & Service in Hermitage Hills, Tenn., a Nashville suburb. ``I get quotes from other agents. I know that sometimes you can let it get out of hand. You let it go three or four years, assuming that since they gave you a good rate to start out with, it's a good deal. But you'll find sometimes it's not competitive.''
Though increases can stem from high losses or poor record-keeping, increasingly insurance companies are jacking up premiums because the companies failed to maintain adequate financial reserves-especially during Wall Street's booming '90s.
The Tire Industry Association assembled an insurance-savvy panel at its International Tire Expo last fall in Las Vegas. There, tire dealers heard Gordon Dudley, Risk Assessment Management Services in Dowling, Mich.; Jerry McAndrews, Universal Underwriters Group, Overland Park, Kan.; Mike Russell, Federated Insurance, Phoenix; and Philip Muller of Affiliated Agency, Plainview, NY.
They offered dealers a nuts-and-bolts approach to helping keep insurance costs manageable.
Don't wait for the renewal notice-``What used to take 30 days is now 60 to 90 days,'' Mr. Russell said. He advocates preparing six months ahead. This not only gives you time to do your homework but leeway to identify other insurance companies and shop them.
Too often insurance company representatives are ``lucky to get the paperwork the week the policy needs to be renewed,'' he said.
Attack the paperwork-Audit your loss history, preferably at least twice a year. Call your agent and request your records. Aggressively monitor that history because things do fall through the cracks.
Losses should be handled in six months or less. If you discover a case that is older than six months sitting in your file, bring it to the attention of the adjuster immediately. Losses of $10,000 or more should have a description. You might find ``skeletons in the closet'' that can burden you with years of premiums that are higher than necessary.
``An adjuster handling claims with moderate severity should have a pending count of 125 to 150, with an annual closing number of 500 to 700 claims,'' Mr. McAndrews said.
No matter what your company's size, keep five years' worth of loss information.
Maintain five years of payroll and gross revenue data. Break them down by category and note future revenues.
Obtaining and studying the motor-vehicle records of your drivers is critical. ``Sometimes they've never had an accident, but they're an accident waiting to happen,'' Mr. Russell warned.
Manage that agent-Give the agent or underwriter a tour of your business. Find out what they're interested in when they analyze your store(s). It's in the dealer's best interest to communicate with agents, because they have the discretion to hike or lower your premiums based on certain criteria. You want the representative to have a good feel for your business and find out how the company determines your premiums.
``To find out what kind of an agent you have, call them and talk about where your exposures are,'' Mr. Russell advised the audience. ``Ask the representative, `What do I need to do to be the best tire dealer, from your perspective?'
``You'll find out real quick whether they're just trying to get a commission check.''
Mr. Muller said independent insurance agents could help. ``Our goal is to fit the insurance companies to the needs of the tire dealers, even in the current difficult market.'' Pointing out that insurance company underwriters are examining each account for profitability more closely, he said: ``This makes it paramount that each tire dealer exercise good judgment, as well as safety and loss control practices for their businesses.
``When the current insurance company issues a cancellation or offers renewal terms, premium or conditions that are not acceptable, there is obviously a need for alternative solutions. Finding companies and acceptable pricing is our goal.''
Pre-emptive strikes-Experts advise to be proactive by giving careful attention to the issues insurance companies hone-in on.
* ``Premium is controlled mostly by loss ratio,'' Mr. McAndrews said. ``Therefore, fewer losses will reduce premiums over the long run.'' Other steps he recommends: hire experienced personnel; train employees on safety; maintain a clean shop; inspect wheels and all work for correctness; make sure repair orders are accurate with all complaints; and warn customers that lug nuts can come loose within 100 miles and ask them to return to have them checked.
* Auto liability is a major vulnerability. A driver's education program for employees is essential. Owners can be held legally and financially responsible for the actions or behavior of employees or anyone else operating company-owned vehicles.
And don't think an employee using their personal vehicle to perform their duties lets you off the hook. Neither will ignorance of an employee's troubled driving history protect you from damage awards. Lawyers, the experts said, love to go after businesses on the basis that a good manager should have been aware of the worker's problems.
Auto issues seemed to strike a chord with the audience. What should be done with the longtime, valuable employee who has a drunk-driving conviction? Try to move them to an assigned risk program, was the advice. And be careful when weighing loyalty to a veteran employee against your businesses' welfare (and that of your other workers.)
Take, for example, an employee with three convictions for driving while intoxicated. If there's any chance that worker can drive the company's vehicles or be in his own car on company business, the worker should be terminated until he or she has gone three years without an incident, advised Mr. McAndrews.
* Install alarms, video cameras and fences to make it more difficult for thieves to steal from your business. Universal Underwriters' ASM Loss Prevention Guidebook offers a number of theft prevention tips.
* Use incentives to motivate employees to maintain a safe, injury-free workplace.
* Consider underwriting yourself. Analyze your insurance history. By using a larger deductible, you're essentially accepting more risk, but in return, you can reap substantial savings on your premiums.
Mr. Russell provided a typical example: A business' premium is $75,000 a year. An examination of the losses shows that every year there's only $2,000 or $3,000 in losses. The owner figures out the cash flow and decides to accept the first $25,000.
That $25,000 deductible can reduce the premium by 80 percent, meaning the cash outlay is $55,000. That saves $20,000 a year, if no unusual losses occur.
* Think carefully about your suppliers. Dealers could be left holding the bag if a tire, made in China, for example, fails and the attorneys can't go after the manufacturer.
* Keep employee turnover low. ``We train people and keep them up on safety in the shop. Our people know what they're doing and having a stable work force keeps injuries down,'' agreed Paul McCarthy, general manager of Garrett's Service Center in Donelson, Tenn.
Dealers should adjust their 2003 budgets to reflect an increase of at least 25 percent in insurance premiums. ``You should not eat this cost,'' Mr. McAndrews told the dealers.
When mishaps happen, it's best to take responsibility right away and often just pay out of pocket, Mr. McCarthy noted. ``Even though we've been real fortunate in that we've had no major accidents in the last six or seven years and no mechanical issues, a while back we had a stereo stolen out of a good customer's vehicle,'' he said. ``We took care of it ourselves and replaced it, just because it's good business.''
The Nashville, Tenn.-area dealer managed to make the proverbial lemonade years ago when lemons landed in his lap-in the form of a wheel that came off a customer's car and proceeded to crash through the windshield of a pickup truck.
Investigation showed the customer's older-model Chevrolet came into the store with factory wheels actually designed for newer Chevys with disc brakes. Although three of the wheels went on OK, the left-front wheel was mounted in a way that left insufficient thread area for the lug nuts.
``It was her first visit to us and there was about $2,500 in damage,'' Mr. McCarthy said.
``We made sure the owner understood what had happened. We took immediate responsibility, and our insurance company also stepped up to the plate and fixed it,'' he said. ``And would you believe today she's a regular customer? All because she has confidence in us.''