Garage Liability

The single most important factor to getting better garage liability insurance pricing is this: lower your demo ratio.

Your dealership’s demo ratio is determined by the number of furnished demonstrator vehicles to total employees. Auto liability is one of the biggest exposures at any auto dealership. Your decisions regarding to whom and how many demos are provided to your employees and non-employees have very important implications on your garage and umbrella insurance premiums.

First, it’s important to understand what is creating the exposure for the underwriter. In addition to the liability exposure for business use of the auto, demonstrators also carry the added exposure for personal use. If a dealer plate is on the car, your primary insurance carrier is providing coverage and that may include permissive users (drivers given permission to drive the car i.e., family members of the employee). In some situations, your umbrella coverage can be triggered. Do you know where your demos were driven and who drove it over the weekend? How about to and from holiday parties? Underlying the importance of the demo ratio are the factors that influence it, including:

  • Probability of loss: Underwriters know the more autos with dealer plates that are on the road, the higher the probability that one of them will lead to a loss.
  • Driver profile: Frequency of accidents and moving violations of the people driving the demos increases the probability of accidents. Certain drivers are more expensive to insure than others. Accordingly, a dealer should consider not only how many demos are provided, but also who is behind the wheel. The decision to furnish demonstrators to drivers ranging in age from 16 to 21 can be expensive.
  • Personal use: Dealers should consider the permissive users of demos and how it could impact their potential liability. Do you have a written policy in place signed by the employees with demo that clearly explains your expectations?

An easy and immediate way to reduce your risk and premiums is to personally register demonstrators used by younger and elderly family members and insure the exposure with separate policies for them using a personal lines carrier. Doing so can isolate your dealership’s commercial garage insurance rates. This is significant. Consider, for example, that young children and elderly adults — the most frequent beneficiaries of demos — give rise to some of the most expensive losses by virtue of factors such as health complications and the long-tail nature of serious injuries. Insurance carriers commonly use three years of previous losses to determine your renewal pricing. An auto accident can impact your experience rating for three years.

As a dealer, you should review who in your dealership is furnished a demonstrator and consider all the costs of the benefit of driving a dealership car. The average dealership’s demo ratio is slightly over 20 percent. Any ratio beneath 20 percent calls for a discussion of reduced premiums and a ratio under 10 percent may merit material premium reductions. Many carriers have different rating structures for sales people and managers furnished demos. These rates can vary 50–100 percent higher than the same employees without demos.

Many of these same principles of underwriting apply to your contract drivers as well. Always remember that while underwriting is a discipline, there is always room for negotiation, so be sure that demo ratios are part of the underwriting consideration. Are your exposure to losses better than average? If so, be sure your insurance broker is negotiating with the carriers on your behalf.


Dennis Kane, CPCU
Senior Vice President

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