By the time you read this, we will have passed the one-year mark of the great shutdown. America’s auto dealers — the owners, entrepreneurs and dream makers — have always impressed me. Overcoming such everyday impediments as market shifts, factory pressure, regulatory hurdles and a fluctuating economy made you the survivor you are today.
But COVID-19 has tested our industry like nothing else in modern times. You have embraced new technologies and adapted your selling process to meet the new needs of your customers. Now it’s time to make sure your reinsurance program has kept up with the progress you’ve made in the rest of your operation.
Owning a reinsurance company should only make you more calm in stressful times. It should not be a distraction or a hassle. It should continue to do its job while you do yours. If you have any doubt about whether your program fits that description, ask yourself:
1. Do I really understand what kind of program I’m on and how it works to my advantage?
You should already be meeting quarterly with a knowledgeable representative of your reinsurance provider. Let the rep know that you have some questions and that you’ll be inviting your CPA or attorney to your next meeting.
Jot down some of your thoughts and email them ahead of time. It’s important that this informal information-gathering meeting doesn’t turn into a sales pitch.
2. Do I have the right products for the new types of customers that the past year has created?
Your agent and provider will be happy to review your current F&I product mix, suggest some rebalancing ideas and introduce new or improved products to meet today’s consumer needs. They have probably already reached out to you and have been talking to your managers. It’s their job to help you deliver the best product available.
3. What is my reinsurance end game?
This has a lot to do with what stage of ownership you personally are at. Growing dealerships need capital to expand, which reinsurance vehicles can provide through loans. Selling your dealership brings issues of valuation and taxes as you make decisions about the company’s future.
In many cases, reinsurance surplus can be turned into dividends, often with favorable tax advantages. Or you may decide to sell the reinsurance company to the new owner or to the provider at a greater profit based on the future runoff.
4. Does my reinsurance program support my succession plan?
It has never been more important as a part of your planning now while you’re still actively involved in the dealership. There are many ways reinsurance can help prepare for the continuation of your family business.
Creating multiple reinsurance companies, proportional risk sharing, separate financial management of reserves and varying product mixes are all ways your provider can assist you in making sure your family name remains at the top of your dealership sign.
5. Does my reinsurance company ownership provide a sense of calm and stability?
If you are constantly worrying if reinsurance is working for you or just don’t have a positive view of your program’s place in your life, you need to talk about it.
There are a lot of options out there, all with varying degrees of motivation, and you may not be on the right one for you. Take a lesson to heart from your F&I playbook and provide yourself with that all-important peace of mind. You should feel good about your decision to invest in a program with such a dramatic influence over your financial future.
Owning a reinsurance company should not keep you up at night. You have enough to think about.
