Welcome to the new normal: How to right size your dealership’s insurance coverage for a post-pandemic world

After more than a year of lockdowns and uncertainty related to the COVID-19 pandemic, Canada looks primed for a return to something resembling business as usual. With another significant change on the horizon, it’s essential you have the right insurance coverages to protect your business — lest a loss generating event cause the downfall of your dealership.

Overlooking your insurance coverage for a post-pandemic Canada can have bad outcomes up to and including not paying enough to rebuild a business should you need it to. Following are three considerations to ensure you have the coverage and knowledge you need as your dealership returns to normal.

Insurance values assessment

When was the last time you conducted a review of your insurance coverages and amounts? If your business has grown since initially setting up your policies, you may be covered for far less than would be required to get back to 100 percent. 

Remember, your insurance company will only pay out the amount you’ve insured, not what you lost. Similarly, if you’re covered for more than you need, the insurance company is charging you money for coverage you will never use. 

Your insurance coverage amounts are the most important part of your insurance policy. Review these at least once per year and consult an independent expert to conduct a maximum loss analysis.

Business interruption

Do your leaders and team members know what to do if your dealership experiences a catastrophic loss? At this point most owners understand the importance of a strong team and well-practiced action plan to recover quickly from a crisis and return as strong as before. Fewer, however, recognize the importance of business interruption insurance in executing this plan — save from having one at all.

Business interruption coverages and waiting periods will heavily influence how quickly and comprehensively you’re able to put your plan into action. But they’re not all equal. For example, physical damage losses may require only 24-hours to begin to claim lost profits, while civil authority orders may require seven days before coverage begins. Similarly, the deductible for a damaging hail event may be higher than for vandalism. The wrong event, paired with the wrong coverage could magnify the impacts of a disaster.

Review your policies to ensure you are appropriately covered for the most likely loss events, and to ensure your business interruption plan mirrors your coverage and when that coverage starts.

Cyber attacks

As we’ve seen in the news over the past few years, breaches are on the rise and the targets are increasingly indiscriminate. According to the Allianz Risk Barometer, cyber incidents are now the third highest risk globally in 2021 — and small businesses like yours are fast becoming a favoured target.

Your dealership collects a lot of sensitive information about customers and employees which nefarious actors would love to get their hands on. Cyber attackers can use this information to damage your business by holding it for ransom and / or selling it on the black market. This puts your finances, reputation, and standing with regulatory bodies in a perilous situation.

Nearly two-thirds of insurance claim costs resulting from cyber-incidents are due to the associated business interruption. Insurance companies are following changing breach tactics, costs, and market demands closely and will continue to adapt policy wordings and coverage to follow suit. Merely having cyber breach coverage is therefore no longer enough to protect your business.

Proper forensic accounting support can ensure you’re as protected as possible and get the maximum possible payout if you experience a breach. Seek guidance before an attack to ensure your insurance coverage and terms are appropriate and you know the potential losses that could result from a beach. Following an attack, your forensic accountant can also help you assess damages and prepare an accurate claim calculation.

From frying pan to frying pan

As the global pandemic continues to abate, many business owners are breathing a collective sigh of relief. But while a return to some semblance of normalcy is undoubtedly welcome, it doesn’t change the importance of business interruption planning — only the types of interruptions you need to plan for.

Ensure your business can get back on its feet quickly and completely by:

• Having an independent advisor assess your insurance coverage and values,
• Reviewing your business interruption plan and related insurance coverages,
• Conducting a cyber risk and controls audit to gauge your risk and resilience to a potential attack

The world is unpredictable. If the past 18 months have taught us anything, it’s that we need to be ready for just about anything. Insurance can help offset some of that uncertainty, but only if you’re covering the right things for the right amounts. Take time to celebrate your long-awaited return to business as usual, but not until after you’re confident your insurance is right sized for this new normal.

To learn more about how MNP can help, contact Craig Burkart , CPA, CA, IFA, CFF, CIP, National Leader, Insurance Advisory, or Michell Miller, CPA, CA, National Dealerships Leader, at [email protected].