It’s common knowledge that on the front end, it’s very difficult for automotive dealers to make a real profit on selling vehicles. Profitability from selling vehicles continues to trend downward. Vehicle Reinsurance can help dealers make significant profits.

Within a typical dealership there are four essential business units. These include Sales, Service, Parts, and Finance & Insurance. Reinsurance is a fifth business unit and it needs to be designed and treated like one.

Reinsurance is a business that integrates and establishes a specialized financial product and elicits a new path for growth, along with stronger gross profits for dealers. Dealers traditionally sell a wide offering of F&I products with insurance companies. These companies are entering into contracts with your automotive customers.

With Dealer Reinsurance, as an entity and your own business, you share in the underwriting profits on these same F&I products which you already sell to customers, including power-train, vehicle service contracts and more.

The benefits of your own Reinsurance business doesn’t stop there. Another advantage in building up a Reinsurance business is the resulting customer satisfaction and loyalty. Third-party vehicle service contract providers will no longer be in charge of making decisions about your customers, as their claims are now in your hands, and you are in control of the entire customer experience.

Discard Those Old Misapprehensions

In the past, there have been many misconceptions around Reinsurance causing a great deal of apprehension for dealers to move forward, largely based on regulatory issues that existed. Today’s Reinsurance industry is highly and properly regulated. Compliance needs to be a priority, and when compliance is adhered to, dealers shouldn’t have any problems in having a Reinsurance business that is highly successful.

If you already have your own Reinsurance business or have endeavored to have a Reinsurance business in the past and are less than satisfied with the results you obtained, you should re-examine your provider, and the advice provided to you to help you grow the business.

Some additional questions to ask yourself are:

• Are you consistently reviewing your statements?
• How much control do you have over your reinsurance business account?
• How flexible is your program related to industry and market changes?
• How much control do you have over the actual money?
• If needed, are you able to borrow against your premiums?
• What is your current provider doing to grow the business? What is their plan?
• How well is it doing? What is the comparison?
  

Creating a Great Reinsurance Program

Your Reinsurance program needs to focus on a mix of the right products. If products simply don’t make sense, they should be omitted. Many administrators will take it upon themselves to advise dealers to put ‘everything’ into their Reinsurance business. However, if the business isn’t making money and if the risks are too high, these products don’t make sense. Product selection should be based upon a customized, individual approach to assess and manage risk.

Risk Assessment

As with most things in any business, there are some risks associated with Reinsurance. Risks are often unanticipated, but primarily the risk with Reinsurance is having to pay off claims if they exceed the deposits and profits in the account. However, if your business is handled properly, like any other business, it will help build your customer base, keep your Service Drive working, and keep your customers for repeat business. For these reasons, even a risk adverse dealer can participate in having a Reinsurance business.

Your Reinsurance Business Options

It’s essential that you understand the various options associated with Reinsurance. The different types of Reinsurance options include:

Controlled Foreign Corporation (CFC)

The CFC is taxed as a US company though also domiciled in an offshore country. All company assets are maintained in US financial institutions. There is flexibility and you can work with investments of your choice. You can also take a loan against the investment and pay yourself back. The money can be used for capital improvements, floor planning, and business investments. This type of Reinsurance plan in effect becomes your book of business.

Dealer Held Warranty Company (DHWC)

The DHWC is an administrative corporation devised as the obliger. The DHWC is owned by the dealer or a dealer group and administered by a third-party. The contracts within a DHWC can be customized with tie backs to the dealership for customer service. This type of set-up is typically treated as an insurance company for tax purposes. This Reinsurance plan also becomes your book of business.

Non-controlled Foreign Corporation (NCFC)

The NCFC is where money is domiciled in an offshore country and approved claims are paid out of it. This type of plan provides the least amount of flexibility to control the investments. Premiums may also be subject to excise taxes. With this type of plan, you can take dividends which become surplus and in turn repatriate the money. While this provides the lowest risk, it also offers the lowest returns.

In conclusion, a Reinsurance business is not one-size-fits-all. The reality is that many purported consultants lack the expertise needed to help you implement a strategy, devise goals and objectives, and guide you through a seamless process.

Reinsurance can put you, the dealer, in the driver’s seat headed toward a more profitable and secure future. You can utilize Reinsurance to expand your dealership or build retirement wealth. It’s a viable option that gives you a source of income and give your customer’s products that provide peace of mind and strengthen their direct relationship with you.

Do you have questions about reinsurance in your dealership? Get in touch with Steve Memolo through LinkedIn or by email at smemolo@ezvds.com.