Captives.Insure & HDI launch dealers open lot group captive

Captives.Insure and HDI Global have combined forces to create and launch a group captive that will cover dealers open lot insurance. The group captive will be one of the first of its kind in the US.

The new group captive will be writing business effective January 1, 2024. Initial conversations and negotiations with interested parties have already begun, Nate Reznicek, president of Captives.Insure, told Captive International, in an exclusive interview.

“We've already started taking submissions from some of our trusted broker partners,” said Reznicek. “VCIA is an excellent time to make the formal announcement to the market at large and allow interested brokers and captive managers time to consider their submissions for 1/1 business for their well-managed insureds.”

Reznicek said the creation of programme has been driven by the needs of the market. Just like the current hard market in the standard property space, there is also a hard market in the dealers open lot coverage space, a type of insurance that provides physical damage and loss of stock and equipment coverage for those involved in storing and selling vehicles.

According to Reznicek this hard market was initially triggered by natural catastrophe events. Some capacity providers had too much concentration of risk and were hard hit by losses. Some exited the market, which resulted in less capacity and increased premiums.

He said the challenges facing dealers has been exacerbated by lower levels of inventory, due to supply chain issues with auto manufacturers. This has made it harder for dealers to sell the numbers of vehicles they need to recoup or recover higher insurance expenses.

Jason Tyng, vice president and captive lead at HDI Global, told Captive International: “We at HDI have a tremendous amount of experience in this line of business. We know the risks associated with auto dealers and are keen to work with Captives.Insure to develop this new programme, available to dealers with excellent risk management programmes and protocols in place.”

Reznicek added: “Our unique programme structure provides brokers and captive managers with the ability to formally take risk inside a group structure without having to sacrifice the power and flexibility of their own captive managers and captive structures.”

Reznicek explained that risk and premium can be ceded back to captives that may be formed and managed by third-party captive managers. It enables dealership shareholders control over domicile, surplus investments, dividend distribution requests, the ability to write additional lines of cover. The structure will also allow other benefits typically available only to owners of larger single parent captives.

At the same time, they will still benefit from the aggregate buying power of the larger group, while limiting risk sharing to only the “best of the best” like-minded dealership participants from across the country. The programme will also pay full, standard commissions for the participant’s property/casualty brokers.

Reznicek said that the programme has been designed with the intention that it will be exclusive to high-performing dealer groups. Captives.Insure and HDI are looking for members that have premiums of at least $1 million accompanied by loss ratios over the last five years that have been under 40%.

The programme will launch with limits of $20 million for dealers' open lot, as well as $1m/$2m for general liability and $1 million garage-keeper’s coverage. Additional lines of business from HDI are slated to be added to the group structure in the future.

“This structure will allow dealer groups to have a real and immediate impact on the majority of their premium spend and still provide a path forward for other lines of business,” Reznicek said.

He added that the project already has about $20 million of submissions. While they will be very selective, not only from a loss of premium perspective, but also in terms of risk management controls and geographic diversification, there will be no upper limit for total submissions.

“Learning from the mistakes of capacity providers in the past, we are going to be selective in how we deploy our capacity,” Tyng added. “As an example, if we're going to write a dealership group in Houston, we're going to write one dealership group in Houston, we're not going to take on two or three where we'll have too much concentration for a catastrophic exposure.

“We're not going to be averse to catastrophe risk, in fact the programme has been designed to allow for it. The programme structure and underwriting guidelines will be the keys to the success of the participating dealer groups.”

Reznicek concluded: “This is something that the market has a significant demand for. But there has just not yet been a viable solution that provides the same flexibility and benefits – until today.”