Performance & Hotrod Business February '14

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Coverage Shop insurance policies can include garage keepers, property, and commercial general liability including coverage for products and completed operations. Major insurance underwriter companies tend to group all automotive shops into the same "Automotive Repair Shops" category, but a handful make a distinction and offer policies that are tailored to what they consider "Specialty Shops". "Hagerty offers several different types of policies to qualified businesses within the classic car and hot rod industry," says Klinger. According to Heckman, Grundy's "Restorer and Builder" program grew from the fact that its founders are familiar with the industry because they are "car guys" and know those shops operate very differently from other repair shops. That makes a big difference to insurance underwriters as well. "The average body shop working with an insurance company is paid a flat rate for each type of repair," says Heckman. "A restoration shop is just opposite. They're artists. Their shops are clean. Workers are conscientious and ultimately, the shop's loss ratio is lower." Those are the kind of observations insurance company risk management inspectors make to determine overall risk as well. When it comes time to insure automotive shops, policies can be written to cover various aspects of the business such as tools, equipment and other tangible assets; intangibles such as loss of revenue; the building itself (if owned by the business); and other property in the building. But there can be a big difference in policies regarding how the property that belongs to customers (i.e., their cars) is valued when inside the shop. Most insurance companies offer Garage Keepers insurance, which protects vehicles that are in the shop, but that belong to other people. Often those vehicles are covered based on Actual Cash Value, which is defined as replacement cost less depreciation. But custom cars don't depreciate; they appreciate. Insurance is always available, but rates are influenced by how you run your business and how much attention is paid to safety and risk management. Grundy, Hagerty and others have recognized how different the custom car market is and instead value vehicles at what is known as an Agreed Value policy. "This applies to projects and completed vehicles and takes into account that project vehicles increase in value as the project progresses," says Klinger. Shop cleanliness is a positive in the eyes of insurance companies. Heckman agrees. "If something happens when a car is in the Care, Custody and Control of the shop, the goal is to get the car owner back to that value prior to the event," he says. "There is no depreciation. We look at build records to determine what the shop spent restoring the car." Premiums Insurance is an exposure-based industry and exposure (risk) determines premium costs, as do levels and quantities of coverage and the location of the business. To determine the level of exposure, the inspector explains that insurance companies perform a loss control evaluation, which includes assessments of a number of factors that affect the relative level of risk a business is exposed to. Some of these factors may include the type and condition of equipment, how customer-owned cars are transported and stored, shop policies regarding customers in service areas and mechanics' certifications. Regardless of who owns it, the age and condition of the building also affects risk, so inspectors evaluate factors such as materials used in the building's construction, the condition of the roof, the wiring, plumbing and heating and the type and age of lighting fixtures. It then rates those factors as being at or near the best in class, or the worst in class. Housekeeping is also important. That means the inspector will look for signs of neglect, like trip hazards, or a pile of oily rags and other potential fire hazards. Geographic location affects premium costs because certain neighborhoods have a higher risk of crime than others; certain areas of the country have a higher risk of damage from natural disasters as well. Every state administers its own insurance law and each state has a say in what rates are. Insurance companies use detailed software to evaluate rates by ZIP code of every community in the United States. Other factors include the frequency of claims and record keeping. But insurance companies look at an auto repair or body shop differently than how they view a custom restoration shop, the inspector explains. "Usually there's a rate-per-hundreddollars of value on the building, but it's February 2014 PHBFEB.indd 83 n Performance & Hotrod Business n 83 1/3/14 12:21 PM

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