Inflation’s Latest Victim: Connecticut Auto Dealers
Author: Tim Rotondi
On March 27, 2021, Connecticut Governor Ned Lamont signed into law Public Act 22-44, which increases the required bond amounts by 20% to 400% for all auto-related license holders in the state including motor vehicle dealers, repairers, and lessors. The law was written based on the recommendations of the Connecticut Department of Motor Vehicles (DMV), and licensees have until July 1, 2022, to comply with the changes or risk having their licenses suspended.
Increased Bond Limits
Inflation is up nearly 9% between May 2021 to May 2022. The auto industry has been hit particularly hard, as the price of used motor vehicles has risen by 16.9% during the same period. To make matters worse, in March of 2022 Connecticut had the highest year-over-year increase in used car prices in the nation at 35.2%. The DMV recommended the increased limits to account for these rising costs.
The new bond limits are as follows:
|New or Used Dealer
What Does This Mean for Surety Companies?
To remain competitive in the market, surety companies are unlikely to raise rates or implement more stringent underwriting requirements as a result of the limit increases. Additionally, the higher bond amounts decrease the likelihood of full limit claims occurring, therefore the surety’s risk per dollar amount goes down as well.
What Does This Mean for Licensees?
Obtaining a Connecticut Auto Dealer Bond is about to become more expensive. Most surety bond premiums are calculated based on the bond’s limit. While surety companies are unlikely to raise rates, licensees will likely end up paying higher premiums as a result of these increases.
How Can License Holders Comply With the New Regulations?
License holders must contact the surety company that issued their bond and have them email a bond rider directly to the Connecticut Department of Motor Vehicles at [email protected]. The DMV will not accept riders submitted by license holders. As mentioned above, licensees must ensure riders are submitted by July 1, 2022, to avoid having their licenses suspended.
The Bottom Line
Inflation has significantly increased the cost of motor vehicles. To keep up with these rising costs, the Connecticut legislature raised the limits on dealer bonds through the passage of Public Act 22-24. Connecticut isn’t the only state to revisit auto dealer bond limits in recent years; Texas, Alabama, and Massachusetts have increased their required limits as well. With the prices of motor vehicles rising nationwide, we expect other states to follow suit and up the ante on their dealer bond requirements.