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Title : 10 Jim Smith explains what a dealer needs to implement a reinsurance program.
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10 Jim Smith explains what a dealer needs to implement a reinsurance program.

Jim, for a dealership to implement a reinsurance
program, what is the critical mass that dealership needs to have?
Well, it's gotten smaller than it used to be. The price of entry into this type of program,
let's just use $5,000 as a cost to form an insurance company. But then, what do you need
to do in order to produce business to make underwriting a feasible option, and also to
make some profits? Let's take a dealer who sells 50 cars a month. And let's say he does
a really good job of F&I penetration at 40% on the service contracts.

So he's going to
do 20 service contracts a month. That in and of itself might or might not be enough business
or enough revenues to justify the formation of a reinsurance company. But in today's F&I
department, you've got service contracts, you've got GAP, you've got tire and wheel,
you've got aftermarket products. We have a lot of dealers that are doing limited warranties
in order for them to bring customers in.

So they'll pay for it themselves, and not even
charge the customer. It's a giveaway to the customer, but it's a cost to the dealership,
but it allows the dealership to have a value-added type of product to them. And when you add
all those products together, you can justify the formation of a reinsurance company. So,
if you're giving away money, in order to attract customers, why not give it to yourself? So
that's what we've done.

We've tried to develop products, a myriad of products, that when
you take them all in total, make it justified to form your own reinsurance company..

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