Detail, Inc., Part VIII — You Can't Afford
to be without Insurance
By Prentice St. Clair
This is the eighth in a multi-part series dedicated to the “business” of detailing. In last month’s column, we discussed ways to attain success in your business. We allowed that creating and maintaining success would not be easy, but that there were some definite steps that could be taken to increase the chances of success.
One of the most important steps a new business owner can take is to make, at the outset, a commitment to excellence — a conscious decision to take a professional approach. Part of a professional approach is making sure that the business is operating with all required licenses and permits — and with appropriate insurance, the topic of this month’s discussion.
WHAT’S THIS INSURANCE?
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?”
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 of the building 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:
Scenario 1 - You operate a mobile detailing business. One day, you are performing a complete detail in a parking lot of a busy business center. You have finished with the interior and are running the engine so as 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 hits a passing pedestrian and runs into a passing brand-new Cadillac Escalade. The injured pedestrian sues you for her medical bills and negligence, and the insurance company representing the Escalade 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 laying around — so basically you would be finished.
Scenario 2 - 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?” Without insurance, it’s a gamble — a crapshoot —that nothing will happen. The problem is, if something does happen, your business is finished.
Insurance has the added benefit of being a marketing device. We must battle against the still popular perception that detailers are flaky by continuously putting forth a professional image. Your professionalism can be enhanced through some simple commitments and activities like:
- Membership in a trade organization (e.g., The International Carwash Association or one of the many regional trade organizations)
- Certification (as discussed in a previous column)
- 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 be protected against. So let’s talk about it from the perspective of different potential problems.
Damage to Customer Vehicles
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 customer 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., 2000 Camry, 2002 Explorer, 2000 Buick, etc.), I may want a policy with a $60,000 liability limit (6 vehicles X $10,000 per vehicle). With this coverage, if all six 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. 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 customers’ 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 vehicles. 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 damages resulting from injuries sustained by the other party. The coverage will pay out up to the limit of liability to such an injured 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, after 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 that 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 (in the pockets of employees, perhaps). And there is generally a deductible (perhaps $1,000) for equipment insurance.
Damage to the Shop Building
If you own the actual building that your 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, can you afford to not have insurance?
Prentice St. Clair is president of Detail in Progress, a San Diego-based automotive reconditioning consulting firm. To contact him, e-mail Prentice@DetailinProgress.com or call (619) 701-1100.