By Dave DeCredico, Senior VP of Business Performance, APCO Holdings/EasyCare, GWC Warranty
As we roll into the second quarter of 2021, it might be a good time to evaluate your dealership’s reinsurance program. Last year many dealers were blindsided by the pandemic, and thus forced to pay closer attention to technology, operations, and staffing issues. Then, to cap the year off, a tumultuous election ushered in a new administration.
A lot has happened in one year. Are your dealership’s short, medium, and long-term goals the same as they were a year ago? Are you feeling more optimistic or pessimistic about the future? If you have pondered any business- or life-altering questions of late, it may also be a good time to consider the following questions related to your reinsurance program.
1) How will new tax legislation affect my reinsurance profits?
We won’t know all the implications of a new tax plan until legislation is passed. The bad news is that tax rates will likely increase, including taxes on dividends and long-term capital gains. The good news is, at this point, it’s almost a certainty that changes won’t take effect until 2022, so you’ve got time to employ tax planning with regard to your reinsurance program.
If tax rates on dividends and long-term capital gains increase from 20 to 39.6% as proposed in President Biden’s tax plan, what are the moves that you should consider prior to any tax rate changes? It may be a good idea to check with your current reinsurance provider to ensure that you are appropriately planning for likely changes, and to determine whether you are structured well for going into 2022 and beyond.
2) Are your F&I products aligned to your reinsurance goals?
Many dealers set up their reinsurance programs simply thinking that the program is a byproduct of F&I as opposed to considering it as an integral part of the dealership’s F&I strategy. Typically, we think about the F&I process as feeding reinsurance, but we don’t spend enough time considering how decisions made in F&I impact the health of reinsurance. Think about it much like you would consider how the food you eat contributes to the health of your body.
Making sure your F&I product offerings align with your reinsurance goals is key to maximizing reinsurance profitability. Ask your provider to work with you on an F&I training and development approach that positively benefits your reinsurance program.
3) How profitable are your reinsurance products?
Knowing whether you’re in the right reinsurance program requires more than just being in the right structure. It also requires knowing which products are profitable. For example, given the growth trend around the frequency and severity of GAP products, does reinsuring the product make any sense at all? If you’re in areas of the country where roads are in bad shape, does reinsuring road hazard tire and wheel coverage make sense? Furthermore, as you better understand loss trends on certain products you may also want to consider how certain vehicle brands perform differently. Finally, if you are reinsuring multiple programs, is there a reinsurance structure that allows you the flexibility of reinsuring programs in different pools that provide the ability to segregate the results of each program? These are the types of discussions that your reinsurance provider should be having with you.
Your reinsurance provider should also be giving you profitability statements on a regular basis. Make sure you understand the numbers behind your loss ratios and which way they’re trending. Don’t just look at top-level data—dive in deep to understand which products and programs are performing profitably and which may be negatively impacting overall results. Understand the options available to increase overall value for your program.
4) Is it time to consider an alternative structure?
Every few years it’s important to review the following:
- How your position has performed from an underwriting and investment perspective
- Alternatives that exist in today’s environment
- How your current objectives align with previous decisions
If you haven’t done this type of review recently, it may be time for a refresh on alternatives. If you were presented all of the options that are available to you today, would you still make the same decision? Chances are your goals and objectives have changed. Tax rate and policy changes are coming, and structures evolve and improve. Don’t you owe it to yourself to make sure that all of these things align so that you can be most successful?
The world has changed a lot in the last year. If your business goals have changed as well, consider these questions so that that your reinsurance program will continue to provide maximum support for you, your family, and your business going forward.
About the Author
Dave DeCredico joined APCO as its Vice President for Reinsurance Programs in 2004 after a successful career in Public Accounting. In his current role, he oversees program development for EasyCare’s Dealer Reinsurance programs, as well as business development activities for APCO, including relationships with OEM and other private labels. Dave is a licensed Certified Public Accountant (CPA).