No one trusts a used car salesman. But now no one will cover them either. John Jackson reports on the trouble car dealerships are having

Being a used car salesman is tough. No one likes or trusts you. And now, adding insult to injury, the insurance industry is making things even tougher.

Underwriters are looking for low risks. So sprinklered florists are at the top of the list and car dealerships come in near the bottom of the list with roofers and scaffolders. And a new European Directive that is intended to help police beat car fraud will mean increased costs for car dealers, brokers and carriers with which they deal.

Road Runner is an intermediary that specialises in the small end of the market - traders without premises - and the demise of Independent dealt it a large blow.

As a result, Road Runner general manager Paul Inskip says it is looking to set up its own carrier in the near future because of a lack of capacity.

He says: "The perception is that this end of the market does not make money, but it is exactly the opposite. Moreover, rates are still rising, and we need to increase profit margins."

"Claims frequency is respectable - it is better than what you might expect." One reason for this, he says, is that underwriters have a £500 excess for accident damage, so traders tend not to put in for small claims.

Trevor Marvin, marketing director of Tradex, the intermediary that traditionally has dealt with the single traders, is now looking at dealers with premises.

He says: "At the small end, a number of traders have drifted out of the market."

Marvin hopes the move will increase profit margins. He adds: "We are not selling road risk. We go on business combined, liability, money and glass - all sorts of things. We have moved across to the more serious side of the market."

Peter Barlow, technical motor manager at MMA Insurance, which underwrites single trader business, says there is no capacity problem. He says: "There are a limited number of insurers in our segment of the motor trade road risks market, but we are not aware of any recent changes of capacity in that market."

He agrees, however, that rates are generally increasing across the market and that this section of the market is a difficult class of business."

Keenly rated
Norwich Union's (NU) story is slightly different. According to NU product manager for motor trade Kevin Aubrey, it is a highly competitive market, so blanket increases are not possible.

He says: "We are in the small, medium to large motor trade customer market where premiums are most keenly rated."

Allianz Cornhill motor trade manager Peter Lawrence points out that the class is an amalgam of motor, property and liability, and that rates have risen by less than property and liability on their own.

While brokers and underwriters quibble over rates, the EU's Fourth Motor Directive has everyone singing from the same hymn sheet.

The directive will see the second phase in developing the Motor Insurers' Database system (see page 47). The Directive's overall aim is to improve claims handling for incidents that occur in member states where the driver is not a national.

Potential nightmare
The killer requirement for motor traders is registration. From 20 January 2003, all motor traders will have to register vehicles with the MID electronically.

With around seven million motor trade vehicles in the UK, Road Runner's Inskip warns that it is a potential nightmare, and could lead to many traders being put out of business.

MMA's Barlow agrees: "Clearly, phase two of the MID will create challenges for both motor traders and insurers alike."

NU's Kevin Aubrey believes the smaller traders will be hit nearer the time for the legislation to come into effect. He adds that it is the responsibility of the individual, not the insurer, to comply with the Directive.

Peter Lawrence of Allianz Cornhill warns that only motor traders with internet access will be able to go direct to the database, the rest having to go via the insurer "and this will add to industry costs."

Tradex's Trevor Marvin adds his concern: "This Directive will cause many people a lot of grief. Many motor traders are not aware of what they have to do."