Can car dealerships manage insurance risks from vehicle thefts?

Car thefts began rising across Canada in 2020 during the COVID-19 pandemic and have been climbing ever since – fuelled by organized crime rings using new technologies to steal key fob codes and take vehicles while their owners are asleep.

It’s gotten so bad that in 2022, insurers paid more than $1 billion in auto theft claims, according to the Insurance Bureau of Canada. And, Susan Penwarden, managing director of personal lines at Aviva Canada, told a Sept. 25 National Insurance Conference Canada panel discussion the average claims cost per stolen vehicle is about $70,000. That hits insured drivers in the form of premium increases – “an average of $125 per policy,” she said.

It’s not just consumers waking up to find cars gone from their driveways. Car dealerships also face the problem, and it’s adversely affecting their insurance coverage.

“[A dealer] will have four vehicles stolen in a month, or at one time. They’ll go out and the vehicles are all gone,” said Mark Ristola, vice president of operations at LL Renaissance Insurance Brokerage Canada. “Or [dealership employees] will get their demo vehicle stolen right off their driveway when they take them home at night.

“It’s affected claims. That’s what they’re focussing on now. Vehicle theft is [a] big problem and especially [for] the dealerships.”

Expensive cars, expensive losses

Pandemic-fuelled supply chain issues made it harder to get new cars, making vehicle theft a lucrative enterprise for criminals. Demand from illicit overseas buyers surged in recent years, which led organized crime rings to target high-end brands – Lexus, Land Rover, Mercedes and even Bentley.

Luxury vehicle thefts are particularly hard on insured dealers’ loss ratios. In fact, a dealership’s loss history can look good until thefts are factored in, “and then that causes them to go to the point of being not profitable anymore,” Ristola said.

“If your loss ratio is running at 50%, thefts can push it up to 70%. There could be at least a 20% increase in your loss ratio just based on three Lexus SUVs getting stolen,” he said. “That’s around a $200,000 loss on a dealership policy that might only be paying $100,000 to $150,000 in premium.

“So, you’re at a 150% to 200% loss ratio just because three vehicles got stolen. You may have nothing else going on in your policy of great risk, and then a couple of vehicles are stolen – and the high-end ones are expensive.”

This story is excerpted from one that appeared in the November print edition of Canadian Underwriter. Feature image by iStock.com/shaunl