The Road To Reinsurance

by Taylor Byrd | Jul 5, 2018 | BHPH Reinsurance, Reinsurance

“My car is broke down. They say it’s going to cost $1286 to fix. I ain’t got that kind of money. I’m telling you right know, if this car don’t run, I ain’t paying!”

Have you heard that before? I would bet you have.

In the Buy Here Pay Here business we are in the unique position of providing vehicles that our customers can afford to make the payments on. Reliable, low cost vehicles. Well, as you know, they are not easy to come by and invariably, they are going to break. When they break, your customer is not going to pay for a car that does not run. This usually leaves you footing the bill.

Steady, consistent car payments are the life blood of the Buy Here Pay Here business. It is important that we send those cars out as sound as possible. Dealers who set their customer up for failure by not reconditioning their vehicles, and having the car break, then punishing the customer for not paying for a car that doesn’t run, set their business up for failure as well.

Most other car business models don’t require the relational matrimony the Buy Here Pay Here dealer has. Other car dealers have an outside lender that assumes the risk/reward of lending. Those lenders, for the most part, understand the importance of the customer buying a Vehicle Service Contract.

There are a couple great benefits when the customer buys a Vehicle Service Contract:

1.When the car breaks there is a pre-agreed upon plan in place to fix it.

2.The customer is happy and keeps making their payments.

The problem most Buy Here Pay Here dealers face is they do not have an unlimited lending pool like the Banks, Credit Unions and other Auto Lenders have. Outside lenders fund the deal including a Vehicle Service Contract. Take, for example the dealer who sells a $895 Vehicle Service Contract for $1295, making a $400 profit on the sell of that contract. The customer rides off into the sunset and everyone is happy.

In Buy Here Pay Here world if a dealer forks out $895 to the warranty company just 10 times during the month that’s $8950 out of their lending pool. The $400 profit made on the sell is great but is only in the receivable column not the bank account. For most Buy Here Pay Here dealers that is not going to work and it seems that the “holding the customer’s feet to the fire” business model is their only option.

If a Buy Here Pay Here dealer has an Admin Obligor Reinsurance Company set up, several positive things are put into place:

1. The premium for the Vehicle Service Contract is premium financed by your admin obligor reinsurance company. The admin obligor reinsurance company divides the premium by the contract term allowing the Buy Here Pay Here dealer to send the cost of the Vehicle Service Contract in on a “as collected’ basis” instead of all up front. This puts little to no stress on the lending pool. So, as more of your buyers participate, it builds a repair fund to which you can, when customer’s vehicles breakdown, confidently say “No problem. Come on down. We will take care of that and get you right back on the road”.

2. Another great benefit is that ownership of an admin obligor reinsurance company allows you to build wealth through underwriting profit. Remember that $895 Vehicle Service Contract? You sold 10 in a month. Over the term, you collect and send in $8950 in cost. Annually, for the sake of easy math, let us say you sold 100 service contracts. That is $89,500. Of that, in claims and fees, let us assume a 50% claims ratio, or 50% paid out on repairing your customers vehicles to keep them on the road. That would have you earning an additional nearly $45,000 this year.

“Reinsurance Company?? That scares me! Or I’m not big enough”

It is exciting that there is now a way for those Buy Here Pay Here dealers who are uncertain about reinsurance, or need to get a little bigger, to have a plan or road map to follow. This new plan will help you see how much this benefits your business and to eventually realize your goal of owning an admin obligor reinsurance company. You too can enjoy the benefits of selling a Vehicle Service Contract NOW on an “as collected” basis. Protecting and keeping the owner’s vehicle running, all the while saving up the funds needed to one day own their own admin obligor reinsurance company.

This is exciting! Finally, a plan where all Buy Here Pay Here dealers can enjoy the benefits of “as collected” Vehicle Service Contract sales.

Keeping your customers on the road and out of collections.

Call DealerRE at 804-824-9533 to receive more information about the Road To Reinsurance and how you can start selling service contracts to your customers, today.