By: Mat Pope and Paul Elliott
Have you ever wondered why, when your dealership has a claim on one of the policies in your commercial package policy (CPP), such as a property, garage/auto liability or employment practice liability insurance (EPLI), it causes the total package premium to increase?
The answer may very well be because you were rated on a multi-line experience rating plan.
This is a common underwriting strategy that many direct writer insurance companies employ. In this scenario, the underwriter looks at the entire bundle of policies and determines the rates based on the premiums collected and the losses paid. Therefore, if you have a loss experience in any one area of coverage within the CPP it may adversely affect all the other coverage lines associated with it.
How can you mitigate this situation?
We believe in segregating appropriate exposures within their own “silos.”
The silo is a separate policy that stands alone and is underwritten on the performance (premiums paid versus claims paid) of only that area of coverage. Therefore, if you have severe damages from a hurricane, the property policy premium may increase due to these claims, but your other policies will not.
Do you prefer having a CPP with all your policies in the same package?
However convenient, this may not be most prudent decision for your business. A CPP may put you one claim away from a rate increase across all your lines of coverage. For example, property, garage/auto liability and (EPLI) coverages have a higher potential for claims, which can put your business at risk for a CPP premium increase. These are coverages that can easily be segregated in silos.
Work with your broker to review your existing plan, explore what may need improving and provide tailored solutions to protect you in the future.
Mat Pope and Paul Elliott lead Valent Group’s automobile dealer practice and work with dealers’ business insurance and employee benefits needs. Valent Group has offices in Mobile, Birmingham and Huntsville and is a subsidiary of EBSCO Industries. Learn more at valentgroup.com/dealers/auto.