Reinsurance: Think outside the box for greater success
Take a financial planning view on reinsurance portfolios to drive profits, build wealth and fund new opportunities.
Last year’s spring/summer issue of Dealer Principal featured a cover story on finding the right profit participation program for your dealership. That article highlighted benefits of the different reinsurance structures available. However, choosing a structure that fits your business is not the end of an effective reinsurance strategy.
To maximize your reinsurance profit participation program, you need to approach it from a financial planning standpoint, the same way you might strategize with an investment advisor or tax consultant. This approach can give you a greater wealth-building advantage, as well as open the door to many opportunities for your business, including:
- Acquisitions and growth
- Additional operational cash
- Business succession planning
- Employee rewards/bonuses for motivation and retention
- Facility upgrades
- Increased charitable donations
- Retirement planning
Reinsurance profits can help fund all this and more, but maximizing profitability requires keeping a close eye on your portfolio and consulting with a provider committed to helping your business achieve its goals.
Three key foundations of reinsurance
During a presentation at the 2025 NADA Show, Eric Schloerb, National Reinsurance Executive for Zurich Direct Markets, advised dealers not to be too passive in oversight of their reinsurance portfolios. Schloerb said that too often, reinsurance “sits at ‘Set it and forget it’ and ‘It will be there in the long run when I need it.’ That might not be the best approach. We’re in a dynamic market. The outside factors are changing all the time.”
Keeping up with the constant evolution demands diligence within these areas:
1. Premium expertise
Tracking return on premium with actuarial precision and scrutiny of loss ratios will inform the best actions needed, whether that’s raising risk premium or offering a deductible waiver to attract customers back to the dealership for repair work and other services. Schloerb noted that using deductible waivers can lead to claims being $400 to $600 lower on repair orders for vehicle service contracts.
2. Claims discipline
Zurich recommends, at minimum, bi-annual evaluation of overall reinsurance management, with a deep focus on claims, ensuring they align with contractual coverage. Reviews of 30-, 60- and 90-day claims reports can help dealerships stay on top of any emerging negative trends.
3. Investment discipline
Thorough oversight on reinsurance trust assets is essential to help ensure they grow over the contract terms. One of the reasons Zurich selected Bank of Oklahoma Financial, NA (BOK) as our new reinsurance trust bank last year was their ability to provide our dealer customers with greater insights into the performance of those trust assets.
Looking beyond the VSC
Dealerships can greatly benefit by taking advantage of the profit participation availability of ancillary products, not just vehicle service contracts. Schloerb explained, “Those ancillary products traditionally have an extremely low loss ratio and can really help from a wealth-building standpoint.”
It may be a bit counterintuitive, but lifetime warranties can be quite valuable in this regard, in spite of typically longer terms. During Zurich’s NADA Show presentation, Michael Naim, Regional F&I Manager, used the successful track record of Lifetime Engine Warranties to explain.
“It’s low exposure, because it’s the engine not the powertrain, and all the data shows that Lifetime Powertrain has more claims and losses than Lifetime Engine,” Naim said. “At Zurich, we’ve partnered with CARFAX. Now, if there’s a Lifetime Engine program and that customer trades, sells or totals their vehicle, CARFAX notifies us, and we take that premium straight into surplus in their [the dealership’s] reinsurance company.”
Reinsurance should be viewed as part of a larger financial planning strategy, and as an additional profit center for dealerships, along with sales, parts, service and other business profit-drivers.
Through comprehensive portfolio reviews, developing marketing programs with reinsurance profit opportunities in mind, and a focus on ancillary F&I products, dealerships can look forward to revenue growth that builds long-term wealth.
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