What Is Car Dealership Reinsurance?
Somebody is going to participate in the long-term economics generated by the F&I products your dealership sells. Make sure you understand who it is.
Car dealership reinsurance allows a dealer to participate in the long-term underwriting and investment economics generated by certain F&I products sold through the dealership.
When a dealership sells products such as a Vehicle Service Contract, Tire & Wheel, Appearance Protection, Key Replacement, Dent Protection or other eligible products, part of the economics is associated with the future risk of claims.
Without an appropriate participation structure, those long-term economics generally accrue elsewhere in the product and insurance chain.
With reinsurance, the dealer can participate in that risk—and the potential reward.
Where Does the Money Come From?
There are two primary economic engines:
- Underwriting profit. If earned premium exceeds claims and applicable expenses, favorable underwriting results can develop.
- Investment income. Reserves held against future obligations may be invested within the requirements of the program, potentially creating additional returns over time.
For example, assume $1,000 of risk premium is associated with a contract. If ultimate claims and applicable expenses consume $650, approximately $350 of favorable underwriting economics remains before other applicable costs and taxes.
Multiply that across thousands of contracts and many years and the numbers can become substantial.
Reinsurance Is Not Free Money
The dealer is participating in insurance risk.
- Claims can be higher than expected.
- Investment markets can decline.
- Fees can erode returns.
- Products can be mispriced.
- And reserves must support future obligations.
That is why reserves should never be confused with profits or immediately available cash.
Why Dealers Use Reinsurance
For many successful dealers, reinsurance becomes much more than an F&I program. Over time, it can potentially become a significant financial asset. It may play a role in:
But the structure must make sense as an insurance business first.
The Bottom Line
Reinsurance allows a dealer to participate in more of the economics created by the F&I products the dealership already sells.
But ownership comes with responsibility. You need to understand the products, claims, reserves, fees, investments, carrier, administrator and structure.
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.