Does your warranty guy love you? I think I know why!  

 Yesterday, I met with a dealer who said and I quote, "I figured up that I have sent (current warranty company) $1,000,000 in the last 5 years." and your claims I asked?  "Around $50k per year". Is this YOU? Did you give your 3rd party warranty company a $750,000 profit? There is a better way!

You can set up a Dealer Owned Reinsurance Company.

  By setting up your own warranty company you get all the benefits of a third party warranty via claims management and accounting.

Structured coverage with Roadside Assistance including towing. An 800 number for customers to call for nationwide coverage with a professional claims team to look out for your best interest.

When a claim occurs our professional claims team will decide if the claim is covered, based on the warranty language initially agreed upon.  However, you the dealer retain override authority. If in your opinion it is in the best interest of the dealership, you can authorize the claim to be paid. This further endears a good customer to you, rather than losing one. You decide what is best for your business and your customer.

Another important difference, for BHPH dealers, from the third party warranty is as the customer makes their payments, a prorated portion of the cost of the warranty is collected and forwarded to the dealers reinsurance trust account. Your lending pool is not depleted and there is ample money to take care of any claims.

So, to recap, by setting up your own reinsurance company you can give the customer Nationwide Warranty Coverage which they pay for in their monthly payments and still maintain override authority.

Wow, could it get any better?  You betcha!

Profit: The monies paid by the customer each month (for their warranty) is set aside as reserve. Any reserve not used to pay claims becomes profit. As an example if you sell an average of 20 cars per month, and $800 goes into reserve from each customer’s warranty, loss ratios vary but for this example let’s say, $200 of every contract on average is used to pay claims. This leaves $600 profit, which is $144,000 in additional dealer net profit per year.

Icing on the cake, Tax Benefits. Because your dealership is paying your reinsurance company for the warranty, it becomes a deductable expense like any other expense.

AND

More Tax Benefits! I am not a CPA, but I know some good ones. They tell me in layman terms, these reinsurance companies are considered small Property and Causality companies by Uncle Sam.  ”Small property and casualty insurance companies with less than $1,200,000 in annual net premiums may elect to be taxed only on investment income under Internal Revenue Code 831 (b).” Distributions are taxed at the dividend rate, currently 15%.

You also have the option to borrow the money.

So, with Reinsurance, you can have Nationwide Warranty Coverage which your Customer Pays for, that is written off as an expense, which you maintain claims control and a New Profit Center that is Income Tax Friendly, to say the least.

So, what are you waiting for? Call today!

 Tim Byrd is President of Tim Byrd & Associates, Inc. An Auto Industry Expert on Dealer Owned Reinsurance Companies with 25 + years experience in the car business. Tim is a trusted advisor to many car dealers. For more information or a proforma work sheet on the possibilities for your dealership, visit www.timbyrd.net or call 757-532-3938.