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Dealer-Owned Reinsurance Companies Put You in The Driver’s Seat

Posted by Steve Memolo on Nov 23, 2020 9:30:00 AM
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dealer-equity-program-1400-834As a dealership owner, resources for realizing long-term revenue are a crucial part of your business. This is where the concept of dealer-owned reinsurance can play an important role.  This financial mechanism can greatly assist with warranty obligations as well as give dealers an upper hand over their business. 

Before diving deeper into the different types and benefits of dealer-owned reinsurance, let's take a closer look at how this program works. 

As a dealer, your company is responsible for service contracts, GAP insurance, and several other types of protection for vehicle purchasers. However, rather than on relying on separate third-party companies for these programs, you are able to own your own company to oversee and provide these plans instead. This allows you to accept and hold premiums for each of various protection plans and retain 100 percent of the profits.   

Dealer Equity plans are available in a variety of structures. 

  • Non-Controlled Foreign Corporation (NCFC)
    These provide dealerships with the option that doesn’t limit written premiums. Deferred underwriting and investment income taxation and advantage rates are other benefits of NCFCs.
  • Retro Programs
    This retrospective program allows dealers greater participation in the sharing of underwriting profits and income without taking on more risk. The apportionment level is directly dependent on the volume of vehicle service contracts sold by the management company in addition to dealer-generated underwriting profits. At the end of the year, the dealer receives a check reflecting their share of the profits. 
  • Affiliated Reinsurance
    Many auto dealers participate in an affiliated or allied risk company since there is greater oversight of investments. This type of plan also may offer more flexible coverage, terms, and rates to compete with local markets. 

While there are several benefits to utilizing dealer-owned reinsurance, the variety of options and plans available must be thoroughly considered. As a result, it is crucial to partner with an experienced financial professional in this area to guide you in this choice. Contact us for more information on how we can assist you in selecting the right reinsurance solution for your dealership. 

Topics: reinsurance, Dealer-Owned Reinsurance, Dealer Equity Plan

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