Connect coverage to the actual operation
A dealership policy may require insurance equal to a stated percentage of the covered value at the time of loss. Where a coinsurance provision applies, a common simplified calculation is insurance carried divided by insurance required, multiplied by the covered loss, less the deductible. For example, if $5,000,000 of qualifying inventory is subject to a 100% requirement but only $3,500,000 is carried, the ratio is 70%. A $1,000,000 covered loss could be reduced to $700,000 before a $50,000 deductible, producing an illustrative $650,000 payment. Policy limits, reporting forms, valuation, agreed value, deductibles, causes of loss, and actual wording can change or eliminate this calculation.
Risks to review
- Peak vehicle inventory, parts, buildings, equipment, signs, or improvements exceeding declared values
- Auction purchases, allocations, seasonal buildup, inflation, renovations, acquisitions, or new locations not reflected in limits
- Incorrect, late, or incomplete monthly or quarterly inventory reports
- Confusing market value, book value, floor-plan balance, cost, selling price, and the policy's valuation basis
- Applying one location's limit or report to vehicles stored at overflow, auction, service, body-shop, or temporary locations
- Assuming a partial hail, wind, fire, theft, or collision loss cannot be reduced by coinsurance or reporting provisions
Information to prepare
- Average and peak vehicle inventory values by location for at least the prior twelve months
- Building, business personal property, parts, equipment, improvements, signs, and other insured values
- Policy limits, coinsurance percentage, reporting requirement, valuation basis, deductible, catastrophe provisions, and causes of loss
- Submitted inventory reports, due dates, calculation method, corrections, acquisitions, and location changes
- Floor-plan statements, dealer management system reports, appraisals, replacement-cost estimates, and lender requirements
- Any agreed-value, blanket-limit, margin, peak-season, newly acquired property, or automatic-increase provisions
Auto dealer coinsurance calculator
Use this educational example to test a dealership inventory or property value against the carried limit, coinsurance requirement, covered loss, and deductible. Confirm that the actual policy uses this method before relying on the result.
Illustrative calculation
- Required insurance
- $5,000,000
- Carried ÷ required
- 70.0%
- Loss after ratio
- $700,000
- Illustrative coinsurance reduction
- $300,000
- Estimated amount after deductible
- $650,000
The simplified formula is: insurance carried ÷ insurance required × covered loss, less the deductible, subject to the policy limit.
This educational estimate is not a claim determination. Agreed value, blanket limits, valuation clauses, loss conditions, deductibles, limits, and actual policy wording can change the result.Frequently asked questions
Can a coinsurance penalty apply to a partial loss?
Yes, depending on the policy. If the carried limit is below the amount required at the time of loss, a covered partial loss may be reduced before the deductible is applied.
What is the basic coinsurance formula?
A simplified example is carried insurance divided by required insurance, multiplied by the covered loss, less the deductible. The policy limit and actual contract terms still control.
Can coinsurance apply to Dealers Open Lot inventory?
It can, depending on the coverage form. Dealers Open Lot may also use reporting provisions, location limits, maximum values, or other mechanisms. Review the exact inventory form rather than assuming the building-property calculation applies unchanged.
Why are peak inventory values more important than averages?
The requirement is often tested against the value exposed when the loss occurs. Auction purchases, seasonal buildup, delayed sales, or manufacturer allocations can place far more inventory at risk than an annual average suggests.
Does agreed value automatically remove every underinsurance problem?
No. Agreed-value provisions have conditions, stated values, expiration dates, limits, schedules, and other requirements. They do not replace accurate values or guarantee payment beyond the policy terms.
Coverage descriptions are general. Eligibility, availability, limits, deductibles, valuation, exclusions, and policy terms vary by operation and insurance market. Actual policy documents control.