Insurance News for 6/5/2020
NAPERVILLE, Ill. — At the height of the, in mid-April, used-car dealer Alex Tovstanovsky had vehicles jammed six rows deep on his lot in the western Chicago suburb of Naperville.
But the seeming oversupply was not a mistake.
Despite plummeting sales at his store, Prestige Motor Works, Tovstanovsky was betting on a recovery, buying dozens of cars in early April as for used vehicles dropped.
That bet is now paying off. Tovstanovsky can offer cars cheaper than local competitors and his sales jumped 38% in May versus May 2019.
“This is an election year and I felt the Trump administration and the Republicans in Congress would do whatever it took to keep the economy strong,” Tovstanovsky said.
Rising demand has now pushed used-vehicle prices about 20% higher than when Tovstanovsky made his bet.
“I just wish I’d bought more cars when prices were low,” Tovstanovsky said.
As America shut down in March to combat the spread of COVID-19 and its economy tanked, U.S. new-vehicle sales plummeted. Sales were down around 30% in May, an improvement from a 47% drop in April.
But used-vehicle sales have rebounded faster. Dealers are now competing to buy vehicles, even as the U.S. economic outlook remains uncertain.
“We actually have an issue now, which is that we don’t have enough inventory,” said George Arison,
co-CEO of online used-car seller Shift. Shift’s sales rebounded to pre-COVID-19 levels by late April.
Americans typically become more frugal and favor used cars in uncertain times. Cars remain a vital commodity in a country where getting to work without a vehicle is impossible in all but a few large cities.
Rising used-car sales increase competition for automakers who must sell new cars to offset cash burned during a two-month shutdown for the North American auto industry.
According to Cox Automotive, new-vehicle sales for the week ending May 28 were down 28%, but sales of used vehicles were up 6%.
According to Cox unit Manheim, wholesale used-vehicle prices rose 5.74% in the first half of May from the previous month.
Carmax Inc, the No. 1 used-car dealer, has already called back about two-thirds of the 15,5000 employees it furloughed in April.
“We expect to come out of this in a position to take advantage of the resiliency of the used-car industry,” said chief marketing officer Jim Lyski.
While dealers say access to financing is plentiful, Wells Fargo & Co said this week it will stop offering loans to most independent dealers due to economic uncertainty.
‘MELTING ICE CUBES’
Used-car dealers say recent customers have ranged from deep subprime borrowers using their $1,200 federal pandemic relief checks for a downpayment, to prime borrowers with pristine credit who saved money working from home since March.
“I’ve seen a lot of downpayments this month of exactly $1,200,” said Scott Allen,
owner of Auto Land in Fort Worth, Texas, which sells older used vehicles. After being closed for nearly a month from March 23, Allen’s sales in May were up 55% over his average for that month.
The U.S. used-vehicle market has distinct layers. At the top, in terms of price, are vehicles returned after short-term leases that look nearly new. Those are a concern for the industry.
More than 4 million off-lease vehicles are due to return to the market this year, at a rate of around 340,000 per month.
Automakers and their finance arms are trying to slow the pace at which those vehicles hit auctions to avoid flooding the market
KAR Auction Services Inc has bought 200 acres (0.81 square kilometer) of land and is seeking another 100 acres to store cars for major customers.
Tom Kontos, chief economist at KAR, which alongside Manheim dominates the U.S. used-car auction market, calls these vehicles “melting ice cubes.” They lose value every day, and cannot be held back for long
Franchise new-car dealers are driving demand for used cars to fill lots short of inventory because the coronavirus shut down assembly plants.
Ten of the top 15 models sold at U.S. franchise dealers were used rather than new between May 22 and May 28, according to automotive marketing platform PureCars.
Source: Claims Journal – 6/5/20 Author: Nick Carey
Al’s, a sporting-goods store tucked in Wilmington, Delaware’s small shopping district, opened during the Great Depression, weathered World War II and has been able to keep workers on the job during the coronavirus pandemic. But this past weekend delivered a new challenge.
Owner Bob Hart closed the 17,000-square-foot shop at 4 p.m. Saturday as protesters walked Market Street, blocks away. A few hours later, around 8:15 p.m., the first of the store alarms went off. Looters who followed the peaceful demonstrations broke windows at the store and stole the majority of Hart’s inventory, including about 10,000 pairs of shoes.
Hart is among business owners digging into the details of their insurance policies to see what losses might be covered. Hart said he’s confident his claim will be successful, but that doesn’t make the process an easy one.
“For every item I’m missing, I have to supply an invoice. That could be real tough,” he said, with some items purchased a year or two ago. “You just gotta try to work through it.”
Did Debate Over Business Income Insurance Just Get More Complicated?
Business income claims due to riots and civil unrest could reflect revenue loss from virus-related shutdowns or receipt of funds from the Paycheck Protection Program.
Riots in Wake of Floyd’s Death Could Become Most Costly Civil Disorder for Insurers
While the industry expects a significant event, it is premature to determine the volume of property loss since it is an ongoing event.
Insurers Prepare for Claims as East States See Property Damage from Civil Unrest
The industry has already labeled the riots as a national catastrophe since insured damage will meet $25 million.
Protesters have come out in droves across the U.S. to speak out against the killing of George Floyd, an unarmed black man who died after a white Minneapolis police officer knelt on his neck for more than eight minutes — the latest incident of brutality against African-Americans. While the protests have been largely peaceful, some people have used the unrest as an opportunity to vandalize and loot stores in cities including New York, Los Angeles and Wilmington.
“It was wrong what they did to George Floyd — it’s sickening,” Hart said.
“But when you take it out on somebody like me, who just has a small business,” he said, trailing off while shaking his head.
Tensions were high overnight as large crowds gathered in New Orleans and New York, yet the ninth straight night of protests over Floyd’s death remained largely peaceful in most cities.
On Top of Covid
The civil unrest comes as business owners continue to cope with the economic impact of the Covid-19 outbreak, which also required them to analyze the fine print of their insurance policies. While there’s been a debate about whether business-interruption insurance covers retailers’ pandemic-related losses, property damage from riots, civil commotion and vandalism are generally covered under standard policies, according to the Insurance Information Institute.
The insurance industry has argued that business-interruption coverage wouldn’t pay for virus losses because of a physical-damage requirement, an issue now being fought over by business owners, attorneys and lawmakers. The situation is clearer when there are broken storefronts from looting, said Kim Winter, who leads Lathrop GPM’s insurance recovery and counseling practice group.
“Here we know that there is actual direct physical damage — there’s no question about it, it’s more than just a microscopic virus, so that’s the difference,” she said.
Winter and Hahn Pam, an associate at Lathrop GPM, said policyholders should try to alert their insurers quickly, even though the protests are still going on, and study their coverage closely. While property damage is often covered, the double-whammy of the pandemic and looting could mean business-interruption claims become more complicated down the road, Winter said.
The 1992 riots in Los Angeles were the costliest civil-disorder event in U.S. history, totaling about $775 million in insured damage at the time, according to the insurance institute. That pales in comparison to damage done by some natural disasters, including Hurricane Katrina, which resulted in $41 billion in insured losses.
Verisk Analytics Inc.’s Property Claim Services, which analyzes various events, has already designated the latest riots a catastrophe, meaning they’ll probably cause more than $25 million in insured damage and affect a significant number of insurers and policyholders. The group hasn’t announced a firm estimate.
Meyer Shields, an analyst at Keefe, Bruyette & Woods, said in a June 1 note that the firm’s best guess is that insured damages should be “relatively modest,” but that the combination of those losses, costs tied to the pandemic and a hurricane season forecast to be stronger than normal could weigh on insurers.
“P&C insurers such as AIG, Chubb and Travelers may see manageable losses from riots across the U.S. possibly topping $2 billion, in our view, given the broader geographical exposure than previous unrest.”
–Matthew Palazola, senior industry analyst, and Derek Han, associate analyst
For now, business owners on the front lines are the ones navigating the aftermath. It isn’t clear when Al’s, the sporting-goods store in Wilmington, will be able to restock, with some suppliers unable to ship goods for weeks because of the pandemic, Hart said after putting a thick chain and padlock on the store’s temporary plywood door.
In Atlanta’s wealthy Buckhead neighborhood, looters hit Attom Concept Store, a black-owned clothing retailer, taking $100,000 of merchandise early Saturday morning. Owner Zola Dias, a Swiss immigrant, sells luxury clothes, shoes and accessories from fashion houses including Balenciaga and Givenchy and local designers.
Dias said he’d let his insurance policy lapse after closing more than two months ago because of Georgia’s Covid-19 lockdown. It was hard to cover the costs as well as his $20,000 monthly rent in the ritzy Buckhead Village plaza, he said. Dias had planned to open on Monday, but found the windows smashed and store ransacked when he stopped by at 5 a.m. Saturday. For now, he’s started a fundraiser and is counting on the generosity of customers to reopen.
“This store is very famous,” said Dias,
whose shop’s Instagram page is filled with pictures of Atlanta hip-hop artists and other celebrities with his apparel. He vents at the injustice of looters targeting a black-owned shop. “We’ve been here for almost four years, so people know us.”
Source: Insurance Journal – 6/5/20 Author: Katherine Chiglinsk, Michael Sasso and Steven Church
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