Dealer Risk Management (Part Two)

Addressing Natural Hazards

Earlier, we stated that the presence of natural hazards was an important—if often overlooked—consideration in selecting a site for a dealership. Natural disasters have taken a heavy toll on dealerships in recent years, and dealers can expect to find insurance underwriters digging deeply into their hazard exposures and plans to avoid them or mitigate the losses.

For all the perils nature can throw at you, there are essentially two types of catastrophic events:

• Those for which you have advanced warning,

and

• Those that occur completely or largely unanticipated.

Hurricanes and floods fall into the first category of disasters that typically have advanced warning. Unfortunately, every loss control measure taken in anticipation of such an event has a potential “downside.”

Scattering your vehicles in adjacent locations may save them from being concentrated in a flooded space, but expose most of them to damage by storm winds and flying debris. Conversely, concentrating your vehicles in hedgehog fashion might limit damage from debris mostly to those on the periphery, but run the risk of concentrating them in flood waters. If you have large enough enclosed spaces, you can park vehicles in them, but you need to know that the structures themselves can withstand storm winds and surging water. If an enclosure collapses, what might have been partial losses to several vehicles may become a total loss to your entire inventory.

In any event, it is critical to develop, communicate, and practice a disaster response plan so that every staff member knows what steps to take in the event of an emergency to protect lives and

property.

Having a well-prepared and well-publicized plan in place is all the more critical for those situations when the event happens suddenly and without warning.

Hail storms arise suddenly and the extent of damage can vary greatly within a relatively small area, even from one block to another. Scattering your vehicle inventory would likely take some cars out of harm’s way, but may not be practical on the spur of the moment, and might lead to numerous and costly “false alarms.”

If you’re in an area subject to frequent hailstorms, you may want to consider the hail and sun shade canopies now marketed by several firms in the U.S. and Canada. Porous but durable canopies are available to shield vehicles from hail, sun glare, and bird droppings while still allowing heat and moisture to pass through. Large canopies are available with retractable features.

The return on the investment in a canopy will be measured by the “hail sale” you did not have to

have, and by the insurance premium hikes that are avoided.