CONTROL THE REINSURANCE
Reinsurance allows the dealers to own and control their own insurance company, the company accepts premiums generated from vehicle service agreements and other aftermarket insurance products, IE tire & wheel, GAP & LTD warranty programs. The insurance company holds these premium reserves and earns 100 percent of the underwriting profits and investment income from these premiums this gives the owner a healthy profit center as long as the program’s losses stay on track.
There are seasoned professionals, “asset builders,” that can provide policing of the program through the repair/claim process. These professionals will evaluate the dealership’s service departments & review 100% of the claims for compliance to agreed upon claims practices & procedures. The reserves are then reinsured thereby limiting the risk to the selling dealer.
The programs have been built to ensure efficient cash flow and the maximization of profitability. One feature of the reinsurance program is the “Net-Net” remittance system. Warranty repairs made by the dealer are deducted from the premiums that are to be submitted, thereby accelerating payment to the dealer for repairs that are made. In addition, weekly funding of premium accounts, transparent accounting and reporting to the dealer are all standard.
A major benefit to a dealer in some cases is the ability to customize terms and coverages. The dealer has complete management control of the reinsurance company and is able to maximize the profit opportunities.
Dixon Odom, one of the largest Automotive accounting firms in the nation, stated in their newsletter of winter of 2004:
“They (reinsurance companies) serve as an excellent way to provide dealers with attractive alternatives to compensate key management personnel, estate planning and best of all, generate additional profits that may be currently be left on the table.”