After a bleak 18 months for the motor trade sector hammered by the COVID pandemic restrictions, there is sign for optimism for car dealers. In April 2021 The Society of Motor Manufacturers and Traders (SMMT), one of the largest and most influential trade associations in the UK, recorded that March 2021 UK car output grew 46.6 percent against Covid hit 2020 when the pandemic forced factories to close.
Car dealership has always been a lucrative sector of the UK motor trade and if you are looking to establish yourself as a new or second-hand seller of cars and vans, then it’s important that you know the rules and regulations regarding setting up and running your business. At Tradex we’ve helped hundreds of dealerships get started and have assisted them with their vital car dealer at premises insurance cover.
With decades serving the motor trade, we have put together a comprehensive guide to the insurance provisions you’ll need to put in place to protect you, your business, your cars and your customers, as well as that all important bottom line. Whilst every business is different in its needs, this is what you will require to get you started.
Why do I Need Car Dealer’s at Premises Insurance?
Any business that sells a motor vehicle of any kind from a premises that isn’t your home will need specialist car dealer at premises insurance. As well as used and new cars, this could also include motorcycle dealers, trailer dealers, farm and agricultural equipment as well as classic cars. A company with high value stock or a variety of high value cars may also need specific cover for individual vehicles.
Becoming a vehicle trader at your own premises can be a financially rewarding occupation. But, whether you are just starting out as a small, local trader selling used cars, or you have your eye on investing in a larger operation offering both new and used cars, you will need the support of a professional motor trade insurance broker to give you the full protection your business needs.
The most important aspect of car dealer at premises insurance policy is the need for flexibility, so you are covered for a variety of business interests from the premises where you are located, to your car stock and necessary equipment. As you will be dealing directly with the public and may also have employees, liability insurances will be a necessary pre-requisite to prevent claims against your company should accidents happen, or someone makes a claim against your company.
Commercial vehicle insurance is a legal requirement, so if you’re selling cars from your premises under your (or the premises) name, you must have the proper road risks insurance in place. As vehicles at a car dealership are often driven off the forecourt prior to purchase (for example, during a test drive), all dealerships must have insurance that covers every car within their business.
What Motor Trade Insurance Coverage Will I Need?
When looking at insurance for your car dealership, you will need a road risks cover policy so that you and your employees and potential customers are able to drive any vehicles connected to your business. In addition, you or your employees are able to drive any customers’ vehicle both on the road and around the premises.
The legal minimum road risks policy is third party only cover which will offer you some protection if you want to buy or sell cars for a profit. It will protect you against any damage you or an employee may cause to another person’s vehicle, as well as compensation costs for any injuries sustained.
However, it doesn’t offer protection for you or your own vehicle (although passengers would be covered). If an accident were deemed your fault, you would be liable to pay any repair costs for the vehicles in your possession. The more cars you have within your dealership, the higher the likelihood of accidents, especially as you will be offering test drives and frequently moving cars from one area to another, both on the road and in the forecourt. For this reason, insurance brokers don’t generally recommend third party only road risks insurance for car dealerships.
The next level, third party fire and theft motor trade insurance, covers a motor dealer for those items mentioned above as well as damages caused due to fire, accidents or theft of vehicles connected to the trade. Whilst this insurance does afford a little more protection, you would still be liable for any damage to your vehicles if involved in an accident.
When starting out in your dealership business, third party may be sufficient for a small company, but a fully comprehensive motor trade insurance policy is recommended if you want your vehicles to be fully protected.
A fully comprehensive motor trade insurance policy will cover you for the above third-party level of cover, together with accidental damage to any vehicles that you own or are in control of for a customer. This means that any repairs needed due to an accident when driving a customer’s car would be covered by the insurance company (less the agreed excess).
Will I need trade plates for my business?
You will also need to produce your Motor Trade Insurance Certificate when applying for trade plates. All cars on sale must be covered by insurance and have a valid MOT in place (unless exempt) but trade plates are able to be used to prevent you having to register or tax each car within your possession. Trade plates are applied for through the DVLA and can save you considerable time and money in your dealership. It is unlikely though that the DVLA will supply trade plates without proof of the correct car dealership at premises insurance.
Will I Need Demonstration Cover?
Demonstration cover allows customers to test drive your vehicles and they can be insured to do so as part of your comprehensive road risks insurance policy. It is recommended that you include demonstration cover, so you are fully insured for customers to carry out test drives under your supervision.
Having this provision in place not only provides peace of mind for you and your customers, it promotes you as a professional business within the industry. You will need to accompany all customers on their test drives, and they will need to have a full UK driving licence. If a customer carries out a test drive unaccompanied or only has a provisional driving licence, you will not be covered by your car dealership at premises insurance and will therefore be liable for any damage to the vehicle.
It’s unlikely that car dealership at premises insurance will include demonstration cover as standard, so you’ll need to speak to your broker about an extension to your conventional motor trade policy and examine the associated extra costs.
What Vehicles Need to Go on the MID?
The Motor Insurance Database (MID) is the central record of all insured vehicles in the UK and is used by the DVLA and the police to reduce the incidence of uninsured driving. As a car dealer it is your responsibility to notify a vehicle to the MID. Failure to do so can result in your car dealer at premises insurance policy being cancelled and prosecution by the appropriate body which may result in a possible fine of up to £5000. Your details will also be recorded on the database as a defaulter.
Vehicles you need to disclose on the MID include permanently owned vehicles for your business and pleasure; any stock vehicle you are using for the purpose of social, domestic and pleasure and any trade plates. You must also include any additions, deletions or change of registration details.
You won’t need to disclose passing-through vehicles for the purpose of sale or resale. However, as a dealer this is a more difficult area to define - you don’t need to disclose those vehicles which are in your possession for resale, or demonstration purposes under trade plates. But, if you want to use any of these vehicles for your motor trade use without trade plates or for any personal use, then such vehicles must be disclosed.
If your insurance broker is updating the MID on your behalf, you must also disclose all trade plate numbers to them as they are required to log these registration numbers with the MID.
Is Liability Insurance Essential for a New Business?
When starting out, all insurance companies understand the need to try and keep costs down as much as possible, but not arranging the right level of liability cover may cost you dearly as your business may be liable for damages and legal fees in the event of an accident. This could in turn determine your future trading viability.
There are three main types of liability motor trade insurance available, which includes:
Public liability insurance: this covers claims if you’re sued by a member of the public for damage to their property or injury whilst at your business premises. If you operate your business from premises that customers visit, you are legally obliged to provide a safe environment. If a visitor trips over an object that you have left lying around and injures themselves, or you accidently knock a cup of coffee over someone’s laptop, for example, this offers you protection should they contact you for compensation. It also covers any legal costs that may be incurred if the case goes to court.
Employer’s liability insurance: This is the only liability insurance that is legally required if you have full- or part-time employees, and you need to have a minimum of £5 million cover. This is to protect you or your employees if one of them were to have an accident at work. If an accident occurs without enough cover, you could be prosecuted and fined. As part of its car dealership at premises insurance, Tradex can arrange public and employers’ liability up to a £10 million indemnity limit.
Product liability insurance (also known as sales and service indemnity insurance). If you are running a used car dealership, you should seriously consider product liability insurance. This covers your business against claims that may arise from faulty parts or defective workmanship.
Despite fully inspecting a vehicle before selling it to a client, there is always the risk that something could go wrong, especially when it comes to used cars. If anything were to happen while your customer was out on the road, such as brakes failing or a loose tyre, it could lead to serious damage to the vehicle, the driver as well as third parties.
If you have product liability insurance, you will be covered for the repair or replacement costs as well as legal expenses if the case were to go to court. If you are found to be in the wrong, your insurer pays any damages, awards, restoration costs or compensation you’re liable for – up to your policy’s level of cover.
Product liability insurance also protects you if any one of your vehicles are damaged accidentally, such as if you scratch the paintwork whilst working on the car or get cleaning products over expensive leather seating while giving the vehicle a valet.
You can also be indemnified against the advice you give in a professional capacity. Whilst you and your employees may be fully trained and have good knowledge of the vehicles you are selling, even the best salespeople can be vulnerable to having a claim made against them if the information given leads to a buyer’s financial loss.
When taking out any motor trade insurance policy, it’s also advised that you work with your broker to determine the maximum level of indemnity you need to make sure you limit your financial risk. This the highest amount that the policy will pay out regarding any one event and generally covers a policy year.
How Do I Also Protect My Premises and Its Contents?
Once you’ve found the suitable location for your car dealership, you will need to find out whose responsibility it is for the correct insurance requirements. Your landlord or building owner may already have some insurance coverage in place but it’s best to check with them before you move in to avoid any future problems.
Whether you own or rent the car dealership premises, you’ll need a car dealership at premises insurance policy which covers all the risks related to commercial buildings. There are numerous threats associated with business buildings, and not just the damage to the physical brick and mortar itself. Fixtures and fittings can be damaged not only from fire or flooding, but also by negligence or accident by the tenants of the building.
In addition to your vehicle stock, insurance will also need to be in place for equipment, machinery and money that may be kept on the premises which are all prone to theft if the right security procedures aren’t in place.
Most people investigating car dealership at premises insurance, are advised to take out a combined policy that not only includes vehicle and liability cover but premises too. This is wise if you operate from premises other than your home, and where you keep expensive stock and customer vehicles overnight.
Remember, that even once you have sold a vehicle, it is still your responsibility until the customer drives it away. If it remains in your showroom and something were to happen to your building, and the car was damaged, you would be liable. Having premises insurance makes sure you would be fully compensated for the damaged vehicles as well as other contents.
Combined Motor Trade Insurance: Your Simple Solution
Setting up a car dealership and putting the right insurance in place can be a daunting prospect. An experienced motor trade insurance broker can build you a combined car dealer at premises insurance policy that takes in all aspects of your car dealership business. This can provide cover for all your motor trade insurance needs under one policy, including road risk, liability, as well as property and equipment combined. It may even work out cheaper to take out combined motor trade insurance rather than a number of separate policies. It certainly cuts down on paperwork and ensures the smooth running of your operation.
How Much Does Car Dealership at Premises Insurance Cost?
It is very difficult to say how much car dealership insurance will cost as it varies based on many different factors. Generally, a combined motor trade insurance policy will work out better value than if you were to take out road risk, liability and premises insurance separately.
Also, getting the right advice from an experienced motor trade broker can help you reduce the addition of costly and unnecessary optional extras that you don’t need in the initial stages of your business.
In general, there are some factors that can have a significant effect on the cost of your car dealership at premises insurance premium. Some of these include:
- Location: If your business is located in a high-risk crime area, this will push up your premium significantly. Before setting up your dealership, you need to weigh up the benefits of an area compared to any risks it may pose. Try to investigate the local crime rate before investing, ask other local businesses about their experiences and do some research to find out if there are better options available.
- Size of your dealership: An insurance broker will take into account the current business value, the number and value of the vehicles you are offering for sale, how many employees you have as well as the square footage of the dealership itself.
- The number and types of policies: as mentioned above, opting for a combined policy can often significantly reduce your overall insurance policy costs. It is also more convenient and time-saving on administration when having your policy all in one place.
How Can I Reduce My Insurance Costs?
As well as establishing your business in a low crime area and looking at a combined policy, there are some other things you can do to reduce your insurance risk and therefore reduce your premiums:
- Your track record: If you have owned your business for a while, or have previous experience of running a dealership, having a good safety record and low accident rate will help to convince your insurance broker that you are low risk. Having a good no claims history should reduce the costs of your policy significantly. If you have a good track record when it comes to claims, it may even be worthwhile increasing your excess in some areas of your car dealer at premises insurance to lower your premium in the short-term.
- The drivers you employ: When it comes to driving cars or even going out on test drive, a more experienced employee will be favoured by insurers when it comes to driving. Having your safer drivers named on your policy will also help to keep down costs When looking at taking on new employees, do a quick background check to guard against hiring individuals with a criminal background or those who have have accrued points on their licence from reckless or drink driving.
- Bonus Booster: As part of its support to help younger drivers get started within the motor trade business, Tradex offers the Bonus Booster. This offers younger drivers with no bonus, a six-month policy to accrue a year’s worth of no claims which can then be used with them on a full-term policy.
- Regular training: When taking on new employees, particularly apprentices or those under the age of 25, an insurance broker will look to make sure you have adequate training procedures in place, particularly if you have new employees taking customer’s out on test drives. Make sure they undergo an accredited safety training course and study a predetermined route to reduce the risk of accidents due to familiarity. Insurers like to know that a company has plenty of training in place to reduce risk of future claims.
- Putting in adequate security: Securing your dealership against theft and vandalism can be a huge plus when speaking to your insurance broker. The more security features you install, the better your premiums are likely to be - some brokers will request a certain level of security before offering you a policy, particularly if you are selling high-end or new cars or if the location of your business has a high level of crime. Flood lights, CCTV, alarms, immobilisers in vehicles and GPS trackers will all help to deter would be thieves and offer extra security to your business.
When looking at the right insurance company for you, choose a broker that has extensive experience in insuring car dealerships of all shapes and sizes. Do your homework and always have plenty of questions in place to make sure you are getting exactly the policy you need for your business. Find a broker who understands what you are trying to achieve with your business, is keen to find the best deal for you and check how easy it will be to change or update your policy as the business grows.