A customer calls your shop wanting a detail and you tell him about your free pick-up and delivery service. He says, “That sounds great, but are you insured?”
By Prentice St. Clair
Or perhaps you have a mobile detailing operation and have been asked by a customer to provide regular service at her office. You call to ask permission to perform the service in the parking garage in which she works and the manager of the garage says, “That’s fine, but I need you to have a $1 million insurance policy.”
What is this “insurance” thing all about? Some newer operators see insurance as a big, nebulous concept that is confusing and complicated. Others see it as an expense that cannot be afforded. Nonetheless, there are two very important reasons to carry insurance. One is to protect yourself and the other is to promote yourself.
Insurance helps you when the worst happens, softening the impact of a catastrophic event. It helps you recover from loss so that your business can continue to operate. Without insurance, a catastrophic event likely will result in the necessity to abandon the business and lose the income that goes with it. A simple accident can be devastating to a business. Let’s consider a couple of scenarios:
You operate a mobile detailing business. One day, you are performing a complete detail in a parking lot of a busy office park. You have finished with the interior and are running the engine to use the car’s heater and fan to dry the cleaned carpets. The car slips into reverse, and before you can get there, it careens off a passing pedestrian and then broadsides a new sedan. The injured pedestrian sues you for her medical bills and negligence and the insurance company representing the sedan comes after you to pay to fix it. We’re talking tens if not hundreds of thousands of dollars. Most detailers don’t have that kind of money lying around, so basically you would be finished.
You have a detail shop. The battery fails on one of the cars you are servicing, so you place a slow-charger on it at the end of the day so that it will be ready to go tomorrow. Sometime during the night, the charger malfunctions, overheats, and starts a fire, which damages the three cars that are in your shop. Additionally, most of your equipment is destroyed and the building itself sustains enough damage that it will have to be rebuilt. Without insurance or a stash of hundreds of thousands of dollars, you would be done.
Now, it is not likely that either of these situations will occur. In fact, most operators complete a career in the automotive reconditioning industry without any such catastrophes. Some might ask, then, “Why have insurance if it’s probably never going to happen?” The answer is simple: Without insurance, it’s a gamble, a crapshoot that nothing will happen. The problem is, if something does happen, your business is belly-up.
Insurance has the added benefit of being a marketing device. We must battle against the still popular perception that detailers are flaky. We can do this by continuously putting forth a professional image. Aside from promoting the fact that you are fully insured, your professionalism can be enhanced through some simple commitments and activities like:
• Membership in a trade organization (e.g., the International Detailing Association or IDA)
• Certification (through a detailing school and the IDA’s Certified Detailer program)
• Holding a business license as required by your local municipality
• Maintaining a professional image with such things as business cards, uniforms, and good signage
• Providing excellent service on a consistent, reliable, and responsive basis
TYPES OF INSURANCE
There are different types of insurance to consider. The type of insurance that you need depends on what type of mishap you are trying to protect yourself against. So let’s talk about it from the perspective of different potential problems.
Damage to the Customer’s Vehicle
You need to cover yourself in case you physically damage the customer’s vehicle. This is generally known as “garage keeper’s legal liability” coverage. It is calculated by multiplying the maximum number of customers’ vehicles you expect to have in your possession at any given time, by the average value of those vehicles.
For example, if I have a three-bay shop and never have more than three vehicles waiting while the bays are full, and I typically work on vehicles of mid-range value (e.g., 2017 Camry, 2011 Explorer, 2014 Ford Fusion, etc.), I may want a policy with a $60,000 liability limit (3 vehicles X $20,000 per vehicle). With this coverage, if all three vehicles are destroyed in some freak accident, I will be covered for up to $60,000 worth of damage to the vehicles, minus the deductible, which is typically $500 per vehicle.
Garage keeper’s legal liability also covers collision damage to the customer’s vehicle with a typical deductible of $500 per vehicle. So, if, while driving the customer’s vehicle around the block, I run into a power pole, the damage caused to the customer’s vehicle may be covered.
Another note: it is preferable to have a policy that is “direct and primary,” meaning your policy pays out first without having to have initial lengthy discussions between your insurance company and the customer’s insurance company.
Damage to Non-Customer Vehicles
This covers you in the event that you are involved in an accident while driving the customer’s vehicles. The other involved parties, who are not customers, may have bodily injury as well as vehicle damage. This coverage is similar to your personal driver’s insurance but covers you when you are working at your place of business driving customer’s vehicles, and it is called “garage keeper’s liability, auto portion.” The minimum limits of liability for this type of coverage is generally $1 million to $2 million, and there is typically a $250 deductible.
For example, if, while returning a freshly-detailed vehicle to a customer’s place of work, I am involved in an accident with another vehicle, garage keeper’s liability coverage will cover damage to the other vehicle, as well as in the event that the other party is injured. The coverage will pay out up to the limit of liability to the other party.
Customer Injuries at Your Place of Business
You need to also cover yourself in the event that the customer injures him or herself at your place of business. This is called “garage liability, other than auto portion.”
For example, let’s say the customer pays for his freshly-detailed vehicle, and, while walking over to where the vehicle is parked, slips on a patch of tire dressing that was spilled by one of your technicians during the last detail. The resulting fall leaves the customer with some type of bodily injury, for which he blames you. He would then file a claim against your garage keeper’s liability insurance policy and be paid for his medical bills and other expenses up to the limits of the policy, which is usually $1 million to $2 million per occurrence.
Fortunately, for simplicity’s sake, the three above-mentioned coverages are generally included under one policy type. This is called a “garage keeper’s insurance policy” and includes:
• Garage keeper’s legal liability
• Garage liability, automobile portion
• Garage liability, other than auto
Damage to or Theft of Your Equipment
If you are running a professional operation, you can have upwards of tens of thousands of dollars worth of equipment, for which you need to be covered in the event that the equipment is damaged or stolen. This type of policy is known as “property insurance, contents portion.” If you own the equipment, you should have this coverage whether or not you own the building.
It is best to insure your equipment for “replacement value,” meaning, in the event of loss of equipment, you will be reimbursed for the current cost of the same type of equipment. This clause in the policy may increase the premium slightly, but it is well worth the extra few dollars because non-replacement value policies would reimburse you an amount that reflects the depreciation of the equipment in question. The resulting reimbursement check can end up being quite a bit less than it will cost to buy new equipment.
If you have a mobile operation, the equivalent policy is called an “inland marine” policy, which covers your equipment as you “float” around the city.
To determine the limits of liability, add up the original cost of all of your equipment, including your detailing equipment and supplies and also your business operations equipment (e.g., computers, phones, furniture, etc.). Unfortunately, most policies do not include tools, unless you insure these at an additional charge. It seems that tools have a funny way of walking off the premises. And there is generally a deductible (perhaps $1,000) for equipment insurance.
Damage to the Shop Building
If you own the actual building that you are working out of (as opposed to renting it), you will need to insure that property. This is known as “property insurance, building portion.” The limits of the liability will depend on the value of the building, which will be appraised by the insurance company before giving you a quote.
There are other types of insurance that you may want to consider, depending on your situation. These include: Worker’s Compensation Insurance, Loss of Income/Business Interruption, Disability Insurance, and Personal Umbrella Liability Insurance.
HOW TO PAY FOR INSURANCE
Insurance is an operational cost of your business. Any successful business owner will tell you that your prices have to cover your operational costs. You can’t charge “back alley” prices and expect to be able to run a professional operation. Your detailing prices must take into account your commitment to professionalism by covering your insurance costs, as well as the costs of maintaining a professional image and using professional grade equipment and chemicals.
If your response to this concept is “well, my customers won’t pay higher prices,” then you need to seriously consider finding new customers. There are plenty of customers out there who are willing to pay a higher price for a professional operator that brings everything to the table.
In the end, it’s not so much a question of whether you can afford insurance. It’s more a question of whether you can afford to not have insurance.
Prentice St. Clair is an International Detailing Association Recognized Trainer and Certified Detailer. As the president of Detail in Progress Inc., he has been providing training and consulting to car washes and detail shops since 1999. He is available at (619) 701-1100 or firstname.lastname@example.org.