Automobiles are becoming increasingly sophisticated and complex, as are the related risks for auto dealers.
For example, in February, 12.5 million accounts with CarGurus were compromised in a cyberbreach that involved the names, email and physical addresses, phone numbers and more of countless customers. CarGurus, a multinational online marketplace that connects car buyers with thousands of dealerships, is facing a bevy of lawsuits over the incident.
Cybercriminals target the auto dealer space because it is fertile ground to harvest the sensitive data collected during the car-buying process, including employment data, bank account information and Social Security numbers. Cyberattacks are now among the top five risks facing dealerships as well as a factor insurance agents and brokers must now consider when advising their dealership clients.
And while all things cyber-related continue to grab both headlines and the attention of consumers, these digital crimes are hardly the only threats driving dealership and car lot-related losses. From old-school auto theft—a risk since Ford's first Model T rolled off the assembly line—to parking lot mishaps, some of these risks are as old as the auto industry itself. However, with the rise of inflation, supply chain challenges and rising costs of litigation, the frequency and severity of these risks, and others, can affect showrooms everywhere that have not prioritized appropriate risk mitigation. As the safety counsel to many business owners, insurance agents and brokers are uniquely positioned to prepare insureds and help manage these threats. This process starts by understanding the complex risks that threaten car lot dealers.
Examining the leading car lot risks
Cyberattacks are far from the only area of concern for auto dealers. Working with an experienced agent or broker, business leaders can not only factor in a range of real-world risks for the industry, but also the severity and frequency of those risks based on their location, inventory types and other factors. Some of these categories might include:
Weather-related claims. Most car lots are exposed to the elements, including hail, storms, winds, heavy rains, snow, ice and flooding and, depending on their location, wildfires. With the increasing frequency of extreme weather and the catastrophic impact of a single-but-severe event, ensuring a dealership's policy factors in weather risks is a critical tool to mitigate high-value inventory losses and lost income from business interruption.
For example, a dealership in Texas suffered a huge financial loss because of a severe hailstorm. To prevent this loss, the business owner could have taken steps including regular monitoring of weather news, installation of a hail netting system and an emergency vehicle relocation plan, all of which would be within the consideration set of an experienced insurance agent specializing in the auto sector.
- Premises liability risks. Every parking lot, sidewalk or public entryway will eventually develop or produce uneven surfaces, standing water or oil spillage that can cause slips and falls and other customer and staff injuries. Car dealers are not immune. Agents and brokers should consider a range of factors specific to each property to advise their clients on establishing sufficient premises liability coverage to protect against claims related to these issues. In addition to coverage, agents and brokers can recommend clients conduct frequent lot inspections, surface repairs and cleaning.
Organized theft. There has been a rise in vehicle theft, often by organized rings using sophisticated tools like key fob cloning. Installation of a key management system and implementing internal key audit log controls can formalize the process of knowing who takes a key and when, and when it is placed back in the cabinet.
Dealership employees should be educated about the importance of the formalized key check-in/check-out process. We know of a dealership that recently experienced this type of loss when a group of criminals acted as buyers and distracted staff to access vehicles' on-board diagnostics (OBD) ports to program duplicate keys. They returned later and drove off with multiple high-end sport utility vehicles. These risks could have been mitigated through proper employee training where strict supervision is required during test drives, installing OBD port locks and disabling on-boarding capabilities after hours.
- Test drive and lot movement incidents. Accidents can happen during test drives, which can damage inventory and even lead to fatalities, such as the death of two people in Madison, Wis., last year. Meanwhile, car dealership inventory can also be damaged by improper lot movements that can lead to dents and scratches. Training staff on best practices for safe test drives, including verifying the age and identification of each driver, and vehicle movement protocols, can mitigate these risks. Agents and brokers should also recommend their clients implement a formal incident reporting system to emphasize the importance of maintaining consistent documentation as well as general safety awareness.
- EV theft and poor security management. Criminals don't just steal cars, they are also targeting electric vehicle (EV) charging stations to steal cables that contain copper wiring. Many dealers have these stations to service their EV inventory and protecting them from theft should be included in the property's security posture and lot management program. This includes installing motion sensor lighting systems, high-definition cameras and other nighttime surveillance protocols. Other tips include parking inventory in defensive patterns where valuable vehicles are blocked in by others, locking vehicles and steering wheels or immobilizing high-theft models.
Important coverage recommendations
As dealers look to better protect themselves, there are many types of coverage that are vital to protecting their businesses. Agents and brokers should offer a comprehensive auto dealer's insurance policy, often including property damage and bodily injury coverage, garage keepers, damage to garage-owned autos and more.
Optional, but often beneficial coverage could also include defective product and faulty work, also known as broadened garage liability coverage, to protect the auto repair side of many auto dealership businesses that might be involved in damage to a customer's vehicle. Dealership owners can also layer in an additional policy to cover the amount of the actual loss of a customer's vehicle, regardless of the dollar limit.
Ensuring the business has the appropriate cyber liability coverage to protect against ransomware and other cyber breaches is now an imperative. In one instance, a phishing email led to a ransomware attack on a dealership that threatened the exposure of confidential dealership customer data. The public release of these sensitive data types can result in extraordinary legal liability as well as bet-the-business-type reputational risks for dealerships. We cannot emphasize enough the need for regular employee education and training on phishing scheme techniques to ensure dealership employees are alert and more likely to spot a threat before the business is compromised.
Finally, agents and brokers have a responsibility to explore and be aware of where and how insureds are using multi-factor authentication on all computer systems and devices to provide increased security of critical data. Understanding where customer data is stored, who has access as well as limiting that access, and the nature of the business' security procedures to protect that data from bad actors must be the new normal of insurance agents to be able to advise clients appropriately.
Implementing technology
As the auto industry and technology continue to evolve in their complexity and sophistication, so too will the threats facing auto dealerships. With Bluetooth key-tracking, geofencing devices and real-time telematics, technology tools are continually entering the market to address rising threats. Other resources include AI-powered lot surveillance systems, digital lot movement apps, mobile check-in service for vehicles as well as deploying drones to assist in real-time monitoring of large lot inventories. As threats for auto dealerships grow and evolve, the technology resources to combat them promise to help business owners keep pace.
Insurance agents specializing in fleet insurance owe it to their insureds to keep pace with both the growing risk categories as well as the emerging technologies being employed to mitigate them. That awareness will allow agents to best advise their auto dealership clients as well as help reduce the frequency and severity of related claims across a range of risk categories.
With experienced and knowledgeable advisors, along with a suite of appropriate technology tools available to them, auto dealers can feel confident they remain in the driver's seat of protecting their businesses and mitigating their risks.
Conclusion
Agents should encourage dealerships to think beyond just buying insurance and focus on building good habits into their daily operations. Simple steps like verifying a driver's license before every test drive, keeping strict control over keys, and reconciling inventory at the end of each day can prevent major losses. Service teams should be trained not only on repairs but also on documenting their work and double-checking vehicles before they're returned to customers, especially with today's advanced technology and EV systems.
From a security standpoint, strong lighting, quality camera systems, secure key storage, and clear after-hours procedures go a long way. And because dealerships handle sensitive financial information, regular cyber training and basic safeguards like multi-factor authentication are just as important as physical security. In many cases, it is consistent processes and not expensive upgrades that make the biggest difference in preventing claims.
