17 Questions Every Dealer Should Ask Their Reinsurance Provider
If you own a reinsurance company, you should understand it like an owner. Do not settle for “Everything looks good.” Ask questions.
If you own a reinsurance company, you should understand it like an owner.
Do not settle for:
Ask questions.
Questions 1–6: Premium, Reserves and Claims
What Is My Current Loss Ratio?
And don't accept only a blended number. Ask for it by product and contract vintage.
How Much Premium Has Been Ceded?
Understand total production and how it has changed over time.
How Much Premium Is Earned Versus Unearned?
Unearned premium still supports future obligations. It is not the same as profit.
How Much Do I Have in Reserves?
And how were those reserves calculated?
What Is My Claim Frequency?
Are more customers filing claims?
What Is My Average Claim Severity?
Are individual claims becoming more expensive?
Questions 7–12: Products, Fees and Investments
Which Product Is Most Profitable?
VSC? Tire & Wheel? Appearance? Other products? Know the answer.
Which Product Has the Worst Performance?
And what are we doing about it?
What Am I Paying in Total Fees?
Not just the admin fee. Everything.
Who Is Making Money From My Program?
Administrator. Carrier. Agent. Investment manager. Other parties. Understand the complete economics.
How Are My Reserves Invested?
Know the asset allocation.
What Was My Net Investment Return?
After fees. Not simply the gross return quoted by the investment manager.
Questions 13–17: Carrier, Exit, F&I and Action
What Is the Financial Strength of My Carrier?
Understand the carrier behind the program and review applicable independent financial-strength information.
What Happens If I Sell My Dealership?
Know before the buy-sell discussion begins.
What Happens If I Want to Leave You?
Understand termination provisions, runoff, fees, claims administration and control of assets.
Is My F&I Department Maximizing the Opportunity?
Review menu utilization, products per deal, penetration by product, cancellations, chargebacks and manager performance. Reinsurance cannot reach its potential if F&I is underperforming.
What Should We Change Right Now?
This may be the most revealing question. A good advisor should be able to identify problems, opportunities, underperforming products, investment issues, F&I weaknesses, fee concerns, structural issues and actions.
If the answer is always "Everything looks great," you may not have an advisor. You may have a salesperson.
The Bottom Line
Your reinsurance company could become one of the most valuable financial assets you build during your career as a dealer. Treat it accordingly.
And make your providers explain the economics in language you understand.
When was the last time someone independently reviewed your reinsurance program?
Confidential. No obligation. There is no charge for the initial assessment. You may discover an opportunity, a problem, or that your program is exactly where it should be. But you’ll know.