With inflation pacing at a rate we haven't seen in decades, have you thought about how your reinsurance portfolio is performing? Inflation impacts many areas of a dealership's business, and one such area (that you perhaps haven't thought about) is your F&I reinsurance portfolio.
How are your loss ratios? Do you know your average earn out per contract after claims? When was the last time you looked at your administration, obligor, ceding, and claims handling fees?
If you haven't asked your F&I provider these questions in a while, you may be surprised how much is being left on the table.
There are a few common hidden expenses that may limit the maximum potential of your reinsurance program. These can include additional obligor fees, ceding fees, claims handling fees, just to name a few. This in conjunction with a lack of reserve discipline and adjustments to pricing over time, can become a major deterrent to overall profitability.
By recognizing these opportunities within your current program and seeking out a better way to administer your funds and claims, you can start capitalizing on every dollar available to you.
It's likely your dealership has a reinsurance book of business in place from the sale of F&I products to your auto buyers. There's a chance your program has been active for years, potentially with little oversight since inception.
Such a hands-off approach comes with a possible, prominent issue: Erosion of underwriting profit.
Considering that the whole idea of reinsurance involves taking on more risk/reward of the F&I product sales, it's not a best practice to let the program run with too little oversight. Every part of your organization’s F&I reinsurance program, from the tax and fee structure, to the way individual products are priced, to the associate development given to F&I personnel presenting products to customers, can be optimized to drive better returns.
Each vehicle price segment, make, model, and sometimes even trim level, comes with its own level of risk and potential underwriting reward when selling products such as service contracts, total loss protection (GAP) waivers, and more.
When your F&I reinsurance program reflects these differences, you are better positioned to maximize all underwriting profit.
Fees and taxes are a common source of tight margins in F&I reinsurance, but there are ways to cut down on these expenses. For example, if there is little oversight of a reinsurance plan, your dealership may be paying for higher-than-necessary taxes, driving your margins down. This is a reason to seek out a close collaboration with a partner that will design reinsurance with your needs in mind.
Fees are another matter. Does your reinsurance partner charge ceding fees or claim handling fees? In the worst cases, these costs will be hidden in contract language, potentially leaving dealers unaware of just how much they will have to pay on each deal. This is a recipe for disappointing profits.
By eliminating the unneeded expenses around the edges of your F&I offerings and ensuring you have regular associate development in place, you can create a customer centric-experience focused on efficiency and value that is CSI-focused, while maximizing underwriting returns.
A F&I reinsurance program isn't a "set it and forget it" process. Leveraging data and analytics to deep dive into a book of business can determine whether products are properly reserved and show opportunities that exist. Regular reserve management results in faster reserve accruals and growth than would be possible without oversight initiatives.
While some F&I Providers will simply set up the program and move onto the next, there is the potential to grow reserves and impact the bottom line progressively, year after year.
In an ideal setup, this constant analysis and adjustment is a collaborative effort between your organization and your F&I Provider or Program Administrator.
Another factor that can be a profit center if monitored closely — and a liability if ignored — is making changes to your offerings, both at an extremely granular level and across the whole line of vehicles you offer. This capability is closely related to ongoing monitoring and analysis.
With inflation becoming more prevalent by the day, this is more important than ever.
If a deep dive into a portfolio finds an unacceptable loss ratio or risk management calculation for a particular product, make or model, making changes to reserves, as appropriate, ensures each program gets the service and attention needed to maximize underwriting profit and returns.
How bad can a lack of flexibility become? In some cases, reinsurance offerings stay at the same prices for over a decade, no matter what the data says, or what market forces do. This is a result of a more hands-off approach and can lead to the erosion of underwriting performance.
There are a few key elements one can look for to determine whether that provider has your long-term best interests in mind:
F&I reinsurance professionals with accumulated expertise, who have been in the industry for years, are the ideal guides for your company's program. These personnel should check in often, rather than leaving your representatives alone to carry the weight of the program.
Look closely at how much you would be liable to pay over time in ceding fees, claim handling fees and taxes in various jurisdictions. These potentially could be additional hidden costs that can add up, and harm the overall margins of a program.
An active monitoring of data can reveal savings and profit opportunities to help you adjust your processes and offerings for maximum returns. While some providers make no effort to analyze the book of business, best-in-industry partners are relentless in finding ways to maximize program growth.
A successful reinsurance program is only as good as the products that are sold. Ongoing training is a critical component to ensure a customer-centric experience and maximum reinsurance growth.
Increasing Service Contract penetrations from 53% - 64% could have an annual impact of a few hundred thousand dollars per store, per year.
JM&A Group embodies the kind of provider your dealership deserves as it builds a relationship with an F&I partner. By building a mutually beneficial relationship that favors your business, JM&A's industry experts can deliver the outcomes you're looking for.
A partnership with JM&A Group gets you unmatched support from real people who have a vested interest in your growth.