Tire and wheel insurance grows in popularity (in US)

Dan Westell | | Automotive News

Detroit, Michigan -Tyre and wheel insurance occupies an obscure corner of the finance and insurance universe. But dealers and insurers say it is a fast-growing business.

Buyers often spend as much as $4000 on wheels and tyres for SUVs, and $2000 for tyre sets for import vehicles.

High-performance cars routinely use low-profile tyres to accommodate bigger wheels. That puts more stress on the wheels, which provides a greater incentive to buy insurance.

Everyday vehicles, too

Yet tyre and wheel coverage also is popular for everyday vehicles. The insurance often is marketed as a roadside warranty or service contract.

At $470 for a five-year warranty, "it's not a very expensive product" for consumers, says John Hutchinson, financial director of Ferman Motor Car Co. in Tampa, Florida.

The Ferman group, which operates 13 dealerships, sells about 350 vehicles a month.

About 25 to 40 percent of buyers choose tyre and wheel insurance, Hutchinson says.

A dealership can make $250 per tyre and wheel policy at the point of sale, Hutchinson says.

Repair work covered by the insurance provides additional revenue, he says.

An IAS poster explains benefits of the company's tyre and wheel warranty.

Price is rising

Claims at Ferman under tyre and wheel policies now amount to $35,000 a month, Hutchinson says. As a result, he says, the price of the coverage is rising.

IAS LP, of Austin, Texas, is seeing 30 percent annual growth in sales of its wheel and tyre package, says CEO Bob Corbin.

IAS develops finance and insurance (F&I) products and software for dealerships.

Most of the 200 or so dealerships that work with Continental-National Services Corp. sell tyre and wheel programs, says CEO Mark Krejci. Five years ago, only about 5 percent of dealership clients of the F&I brokerage in Tampa offered the coverage, Krejci adds.

"We do a lot of it," he says.

Aon Warranty Group, a division of the Chicago insurer Aon, underwrites tyre and wheel policies through its Virginia Surety and FFG units.

Sales have grown rapidly over the past four years, says Steve Hayes, Aon Warranty's chief administrative officer. "It's a good product," Hayes says. "It's one of those intuitive products."

But margins for insurers are thin on tyre and wheel insurance, Hayes adds.

Changing state standards also affect the market. Because California law requires an insurance licence to sell tyre and wheel coverage, Corbin says, most dealers don't offer it. New York has just legalised the product, he notes.

Because of potential damage to tires and wheels from potholes and highway construction, demand for the insurance is growing, industry executives say.

The policies generally are supposed to cover damage from road hazards as well.

"Curb damage is an issue," Aon's Hayes says. If insurers determine that payouts related to curb damage are too high, he adds, the price of coverage may rise.

From Automotive News (A Crain publication)