Can You Afford Not to Have Insurance?
Detailers need to protect themselves and their businesses
By Prentice St. Clair
As professional detailers, we try our best to operate our businesses in a professional manner. We obtain the business licenses and permits required by our local municipalities, obtain the necessary training in order to provide professional service and maintain memberships in both the International Carwash Association as well as regional associations. There seems to be a certain amount of resistance, however, to a very important element of a professional operation--insurance. This is true especially among smaller operators. Part of this stems from the cost of insurance and part of it from lack of understanding of the type of insurance one needs.
In the early days of my detailing business, Detail in Progress, I, too, operated without insurance. But, knowing what I know now, I would never go back, regardless of the cost of the insurance. In this article, I hope to clarify both the importance of commercial insurance as well as the type of insurance to have.
Why should I be insured?
The answer to this question is quite simple. Without insurance, you are exposing yourself, your business and your family to the gamble that nothing "bad" will ever happen while you are operating your business. Regardless of how careful you are or how good your intentions are, it only takes one accident or frivolous lawsuit to destroy your business with all its earning potential.
Unfortunately, our industry provides almost weekly examples of the risk of operating without insurance. Take, for instance, a shop that recently burned down after being ignited by a faulty battery charger hooked up to a vehicle parked inside the shop overnight. The owner was not properly insured and somehow has to come up with the money to cover the damage to the shop, the detailing equipment, as well as the five customer vehicles that were damaged in the incident. When faced with a situation like this, unless you happen to have several hundred thousand dollars stashed away somewhere, your business is dead.
The above example is, admittedly, on the extreme end of the range. Perhaps you are simply a mobile detailer operating alone or with a handful of employees. Imagine a situation as simple as damaged paint resulting from an employee who is a bit overzealous with the buffer. Or maybe the vehicle upon which you are working slips out of "park" and rolls into the owner's other vehicle. Or, heaven forbid, your employee is involved in an injury collision while pulling out into traffic in order to return a detailed vehicle to the office park next door. In each of these cases, you are faced with a repair bill that could total hundreds if not thousands of dollars. In the last case, you are also faced with the medical bills of the injured parties, which can easily go into the tens of thousands of dollars. Are you ready to pay that kind of money out of your savings account?
The proper insurance will go a long way to minimize the devastating impact of the situations that I have described. In essence, the insurance policy pays for most of the damage so you don't have to, thus allowing you to regroup and continue your business operations.
And if you are fortunate enough to never have cause to file a claim against your insurance policy, you still benefit from just having insurance. You can use the fact that you are insured as a powerful marketing tool. In general, customers feel much more comfortable turning over their vehicle to an operator who is insured. Furthermore, most customers understand that there are increased costs to operating a licensed, certified and insured business, and you will find that these customers are willing to pay higher prices for the increased level of professionalism. I strongly urge operators who have the proper insurance to advertise that fact in all of their promotional materials (e.g., "We are fully insured").
What insurance do I need?
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., 1999 Camry, 2000 Explorer, 1998 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 damaged 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. It is preferable to have a policy that is "direct and primary," meaning your policy pays out first without initial lengthy discussions between your insurance company and the customer's insurance company.
Damage to non-customers' vehicles. This covers you in the event that you are involved in an accident while driving a customer's vehicle. The other involved driver(s), who is not a customer, may have bodily injury as well as damage to the vehicle. This coverage is similar to your personal driver's insurance but covers you when you are working at your place of business driving customers' 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 dollars, 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 injuries to the other party. 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 the customer injures him or herself at your place of business. This is called "garage liability, other than auto portion." For example, a 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, and
- Garage liability, other than auto
Damage to or theft of your equipment. If you are running a professional operation, you can have 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.
To determine the limits of liability, add up the original cost of all of your equipment, including your detailing equipment and supplies and 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). 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.
Other types of insurance
Bonds. A bond is coverage against theft of the customer's property by employees. Bonds are usually used by companies that have employees who routinely operate within a customer's home or place of business (e.g., janitorial service, installation service), where there is the potential for the employee to walk away with customer property. Although it is true that typical garage policies do not cover theft of personal belongings from the customer's vehicle, the use of bonds is not a typical practice in the detailing industry.
Worker's Compensation. Of course, if you have employees, you have to have worker's compensation coverage, with what are known as "statutory requirements." That is, your state will have limits of coverage established by law. Worker's compensation covers you in the event that one of your employees is injured or killed during the course of work.
Loss of Income/Business Interruption. This covers your normal and customary business expenses (rent or mortgage, insurance payments, loan payments, etc.) in the event that your business is unable to operate for an extended period of time, for example, due to natural disaster. Typically, there is an "elimination period" of 30 to 90 days. This is a waiting period between the time the business must shut down and the time you receive money to pay the bills. Business overhead and expense disability insurance does not cover your personal income--for that, you need personal disability insurance.
Disability Insurance. This type of coverage can also be called "income insurance" because it covers you in the event that you are not able to work due to physical injury or ailment. It pays a portion of your normal income after an elimination period of 60 to 120 days. Disability insurance can be expensive, but it is worth it, considering the fact that we are more likely to become disabled than to die by retirement age. That is, you are more likely to be unable to work because of physical injury or disease than because of death. Thus, this type of insurance is very important, especially for the business owner who does not have an employer to turn to for worker's compensation. Establish a policy that will not only increase in value as your income increases, but will stay in effect should your job description change.
How much will it cost?
This is one of those questions that is answered with a big "it depends." It depends on the size of your operation (i.e., the number of vehicles in your possession at any given time), the types of vehicles upon which you work, and the limits of liability that you choose. Your qualified commercial insurance expert will be able to run the numbers and make adjustments to the policy so the premiums fit your budget.
A "good" garage keeper's policy for an owner/operator mobile detailer with no employees will start at about $1,200 per year, or about $100 a month, on average. If you are not bringing in at least 30 times that much in gross income, you are not pricing your services correctly, you aren't working a full work week, or your marketing efforts are inadequate. In short, you should be able to afford a basic garage keeper's policy--if not, something's wrong with your business operations.
Complete coverage for a detail shop owner who also owns the property will cost about $2,000 per bay per year. But the cost of insurance for a fixed operation can vary widely depending on the location.
(Please note that the above examples of premium are suggested for reference only, and you should speak with your qualified commercial insurance agent to determine the exact amount of the premium that applies in your situation.)
Can I afford it?
The excuse I most often hear for not being insured is, "I can't afford it." For those who feel this way, I hope that a thorough reading of this article has you instead asking yourself, "Can I afford to not have insurance?"