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Business insurance covers more than your personal security – does yours cover the important things?

Whether you love it because it gives you peace of mind or hate it because you feel like it’s money spent every month without any obvious return on investment, insurance is a critical part of a successful repair shop operation.

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Running a shop presents risks at many levels and making sure you have the proper insurance protection is critical to successfully navigating the potential pitfalls that wait for you each and every day.

Do you know for a fact that you have the right coverage? You might be surprised. Here are some real-world examples that have proved to me that what I thought I knew about insurance was not nearly enough.

It Was A Show Car!

Say one of your best customers stops by your shop to discuss a special project he wants your shop to do. He trusts you and your team, and your shop is one of the few to ever work on his prized 1958 white- over-red Corvette. It’s not only a show car, it’s numbers matching!

He’s looking to have the engine rebuilt and he wants to provide you with an original date-coded dual four-barrel intake manifold and carburetors.

Engine building is well within the scope of your shop’s skillset but not something you do often, so you hesitate for a minute. Still, given that this is one of your best customers, you relent and take the work in. It’s old-school mechanical repair…what could go wrong?

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The engine build moves forward smoothly and the carb setup goes on without a hitch. The run-in process is typical of all the other engines you’ve built over the years and everything looks peachy. The only thing left is a simple test drive.

Your lead tech takes the car out for the final road test, stops at the intersection, and without warning, sees smoke billowing from under the hood.

A fuel line issue in the vintage intake becomes a dangerous underhood fire and the only thing that saves the car from becoming a pile of ash is the utility truck sitting at the light next to your tech with a load of water to smother the fire.

It’s a terrifying scenario and, yes, it actually happened at my shop in Houston in 2011. The financial loss from the Corvette fire exceeded $30K. Thankfully, my insurance agent had my shop in a position to handle such a loss, and my only financial exposure was the deductible of $2,500.

The Call You Never Want To Answer

It’s 4:30 in the morning and the phone rings. You wake in a panic because you know that only bad news comes at that time of day.

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A family member is on the phone yelling about one of the worst things that can happen at a repair shop – the facility is on fire! An arsonist had set the shop ablaze with diesel fuel and a flare.

This happened to Matt Allen in 2004. After nine years building his Phoenix, AZ, shop from scratch, Matt was faced with the unfortunate task of raising Virginia Auto Service literally from the ashes.

No shop owner is ever really prepared for such an uphill battle but with Matt’s drive, determination and proper planning before the fire he was able to successfully bring his shop back.

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While most shop policies cover losses related to the facility and damage to customers’ vehicles, unless the owner adds a specific rider to the policy, loss of income isn’t covered. In a lot of cases, shop owners either aren’t aware or choose not to add this key element to their insurance policy. In Matt’s case, he had BIC, also known as business interruption coverage.

He was able to retain his employees and continue issuing regular paychecks even though almost all of his shop was destroyed. Matt operated his shop out of a mobile office and ran reduced capacity in the three undamaged bays during the rebuilding process. 

Business interruption coverage is a rider on your business’s personal property insurance policy. It replaces the lost income and extra expenses that you face while the business is going through repairs necessary to get it back up and running again after a covered loss.

Key takeaways from Matt’s situation are these: Matt wasn’t penny-wise and pound-foolish when setting up his shop’s insurance coverage. He didn’t ask his agent for the cheapest policy; the agent was told to put together a package that was in his customer’s best interest. In a lot of cases, shop owners will take the “this would never happen to me” attitude. In fact, Matt told me, “I thought it was a metal building, what could burn? As it turns out, everything is what can burn.” 

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Matt’s foresight and careful planning – and partnership with a great agent – are some of the elements that allowed him to continue his successful business. Matt has a team of advisors, one of whom is an accountant who ensured he run his shop in a fiscally responsible way. Having a reserve when disaster struck gave him the cushion he needed.

Increased Coverage In A Flash

In a shop management class I was teaching about minimizing risk, the topic of equipment was on the agenda. The class members were discussing what each of them had in the way of insurance coverage on equipment. At the end of class, I gave them all homework: each was told to contact their insurance agent the following day to make sure they had replacement value coverage on their shop’s equipment. If not, they were told to get an estimate and increase coverage if appropriate.

The following week in class, Bobby Franklin, owner of Charlton Tire Service & Repair in Jacksonville, FL, shared a story with all of us. He explained that he did the homework assignment, calling his agent the day after our session. When he found out he had only standard coverage on his equipment, he upgraded his policy to replacement value. 

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Just a few days after this increase in coverage, his shop was struck by lightning, taking out his older Hunter alignment equipment and the A/C recovery machine sitting right next to it. The adjuster came by right away, cutting his shop a check for the amount he needed to purchase brand-new equipment.

Does your current insurance policy include:

  • Replacement value of your equipment?
  • Employee tools?
  • Business Interruption Coverage (BIC)?
  • Theft, including employee theft?
  • Mysterious disappearance of property?
  • Liability for vehicles entrusted to your care?

If you don’t know, make a phone call today. Whether you have razor-thin protection or are prepared for anything, having a regular review of your insurance coverage with your provider is smart business. The three examples in this article are only a few of the perils that can strike your shop at any time. 

In addition to the layer of coverage, you should make sure you have the correct amount of insurance in place should you sustain a total loss of building and contents. Remember, business insurance doesn’t just cover your personal security – it’s important to your property, employees and customers’ security, as well.

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