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What is Reinsurance?
Reinsurance is a program that allows the dealership to participate in the underwriting profits and investment income generated by the warranties they sell. Instead of simply selling third-party warranties where the dealership earns only a commission, reinsurance gives the dealership a greater financial stake by allowing them to set up their own reinsurance company or participate in a reinsurance structure.
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Here’s how it works:
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Dealership-Owned Reinsurance Company:
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The dealership forms its own reinsurance company, often called a “dealer-owned reinsurance company” (DORC).
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When the dealership sells a vehicle service contract (warranty), a portion of the premium paid by the customer is ceded (transferred) to the dealership’s reinsurance company.
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The reinsurance company is responsible for paying any claims on the service contracts, but it also keeps any unused premium, allowing the dealership to earn profits that would have otherwise gone to a third-party warranty provider.
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Financial Benefits to the Dealership:
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Underwriting Profit: If fewer claims are made than expected, the dealership's reinsurance company gets to keep the remaining premium as profit.
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Investment Income: The premiums held in the reinsurance company can be invested, earning additional income over time. This is a key long-term benefit for dealerships that have consistent sales.
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Control Over Claims: Dealerships that own their reinsurance company have more control over the claims process, which can lead to improved customer service and potentially lower claims costs.
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Structure and Setup:
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Dealerships typically work with a reinsurance administrator to help set up and manage their reinsurance company. These administrators handle regulatory compliance, claims processing, and other administrative tasks.
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The dealership usually partners with a reinsurer to share the risk. The reinsurer takes on some of the financial liability for large or unexpected claims, while the dealership still participates in the profits.
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Tax Benefits:
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Reinsurance companies can provide tax deferral benefits because the profits earned by the reinsurance company may not be taxed until they are distributed back to the dealership (depending on the structure and jurisdiction).
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Why Dealerships Use Reinsurance:
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Profit Maximization: Instead of just earning a commission on third-party warranties, reinsurance allows the dealership to keep a large portion of the premium and profit from lower-than-expected claims.
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Business Growth: With the additional profits and investment income, dealerships can reinvest in their business, grow their offerings, or increase their financial stability.
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Customer Loyalty: Dealerships with their own reinsurance program can improve claims processing and customer service, enhancing customer satisfaction and loyalty.
Why Choose Us?
Lower Admin Fees:
We do a substantial about of business with our admin companies. Because of our volume, we have been able to negotiate unbeatable admin fees.
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Knowledge:
We are reinsurance experts. We are able to set you up with the correct structure to maximize your profits and tax advantages.
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Transparency:
As a dealership owner, you will not find anyone who is more transparent than us. We have a custom built portal that allows you to see your earned and unearned premiums, claims losses brown down to repair type as well as make and model. You can also track your investment income, total contract counts, and a breakdown of where the money from the admin fee goes (insurance clip, claims adjudication, ect..). Instead of receive cession statements quarterly (if at all), you are able to track your reinsurance company performance on your own time.
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Support:
We don't just give you the best rates and setup your reinsurance company for success. We also focus on training for your sales department and managers to maximize monthly sales numbers of both cars delivered and ancillary product sales. It is our mission to maximize your profits. If you ask us what we do for a living, our only response is, "We make rich people wealthy".
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Formations:
We do all the heavy lifting in the formations of your reinsurance company. We take all the headaches out. We will advise you on what type of company to open, and open it for you. We handle all the paperwork and filing necessary to open your 100% owned reinsurance company.
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Tax Preperation and Filing:
We handle all the tax prep and filing. You can trust that our attorneys and CPA's will put you in the best possible position to keep more of your money.