Maximize the Benefits of Reinsurance: Part II

This is the second of a four-part look by Buckeye Dealership Consulting’s CEO Rob Fox regarding the independent automobile dealers and finance companies can maximize the benefits and profit opportunities that come from establishing their own reinsurance company.

Part II: Reinsurance Adds an Additional Profit Center

Record wholesale prices, inventory shortages, and increased operational expenses are issues seemingly every dealer has faced, especially over the last 12 months and may face into the foreseeable future. As margins on vehicle sales continue to get pinched, finding alternative sources of income in the dealership is more critical than ever. Whether you’re a retail or buy here, pay here dealer, having a robust F&I office is a vital a tool on a dealer’s belt to offset those tighter margins. Having your own reinsurance company will add tremendous value to your F&I office as a profit center.

Selling third-party products results in you sending premiums and profits elsewhere. Sure, there are commissions and some small profit-share opportunities, but the third-party earns the interest and reaps the majority of benefits of the earned premium.

With your own reinsurance company established, you can pay yourself the commission on the sale of the products and take part in 100% of the underwriting profit. Keep in mind, that money won’t just sit idly collecting dust. It will be placed in U.S. banks and earn investment income for you. (More on that below.)

Control Customer Satisfaction
As the used car marketplace becomes more competitive, dealership reputation plays an important role in sustained success. Unfortunately, reputation can be damaged when selling a voluntary protection product if claims administration is not handled properly.

Far too often, consumers complaints end up in the hands of the Better Business Bureau, a state/federal regulator’s office, or worse – an aggressive plaintiff’s attorney. These complaints often mirror a similar fact pattern: consumer has a warranty or bought a service contract, experiences a breakdown, and then has a claim under the warranty/service contract denied. These consumers allege that they were duped into purchasing a voluntary protection product that has no value.

When you sell someone else’s product, you lose control over how claims are handled. It is that entity’s administrator who decides what claims are and are not paid. But, in the consumer’s mind, “you” make the decision, because it was “you” that sold the product.

By establishing a dealer-owned reinsurance company, you assume the risks associated with any claims. Because it is your risk, you get to decide how the claims process is handled and what gets paid, consistent with the terms of the product agreement with the consumer. In turn, you get to interact with the customer, manage customer expectation, and appropriately react when a claim is paid or denied.

Coming: Part III: Brand Management Flexibility