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F&I

Underwriting and Its Impact on Your Business

Contributing Author: Cliff Eller, Executive Vice President, Product CommercializationWith the first quarter behind you, it’s time to evaluate your progress and plan for the rest of the year. As you re-evaluate dealership processes, it’s also a good idea to step back and look at your relationship with your product administrator. Are they providing products that enhance your credibility with consumers? Are their products structured with enough reserve to handle any volume of claims no matter the market conditions?

It’s important to answer the following questions:

  • Is your product provider backed by an A.M. Best “A” Rated, fully insured underwriter?
  • How long have they been with their current underwriter?
  • Who has backed them in the past?
  • Do they adequately price their products to manage the reserve to pay claims?
  • How is their customer service in their claims department?

When partnering with a product administrator, you want to be sure that their reserves are handled properly to ensure that any unpaid claims don’t reflect back on you. One of the easiest ways to determine whether a product administrator will benefit your business is to look at the relationship with their underwriter.

First, find out their A.M. Best Rating. The rating signifies the company’s financial strength and ability to meet its ongoing insurance policy and contract obligations. Simply put, if their underwriter is a reputable company that follows through on its obligations, it’s highly probable that your product administrator is too.

However, that credit rating alone cannot convey the strength of the relationship between the product administrator and the underwriter. If the administrator has a relatively new underwriter, it’s a good idea to look into their history with others. Do they hop from one to another? With whom have they done business in the past?

Looking at how long the company has been with their current underwriter or whether they flip from one to another can tell you about the company’s viability in the market. If they can’t maintain a long-term relationship, they are most likely mishandling their reserves and putting the underwriter at greater risk. Looking at the company’s history of underwriters will display a pattern. If they’ve only worked with strong underwriters, their products are probably handled properly. If they can only attract weak underwriters, they are most likely mishandling the structure and pricing of their products.

Another area to evaluate is their reserve structure. While inexpensive products are well and good, that low cost could negatively affect the funds put in reserve to pay claims. Find out how much income from each product sold goes towards paying claims. Ask how many claims are paid each year, and take a look at their Better Business Bureau rating. If the BBB is inundated with consumer complaints about unpaid claims, that could point to a reserve issue.

One way to determine whether the reserves are handled appropriately is to find out whether their underwriter’s actuaries assist in the process of pricing the products. The actuary’s primary role in this process is to protect their company from the negative impact of having too little money to pay claims. So, they would be the most stringent about making sure the reserves are appropriately priced to accommodate the associated claims exposure.  If they sign off on product pricing and structure, that’s a good indication that the reserves are set up correctly.

It is also important to find out how the product administrator takes seasonality or market changes into account. Does the company compile it’s data to determine both long and short-term trends to refine coverage and rates? For example, more claims are filed during winter for tire and wheel policies because of worse road conditions due to potholes. The key to managing this loss ratio is to plan ahead by taking this seasonal change into consideration when first presenting the price structure.

Lastly, look at their customer service in their claims department. How fast are incoming calls answered? How quickly do they process a request? How often are calls abandoned? These statistics paint a picture of the customer experience. If customers spend most of their time waiting for their call to be picked up or for their request to be processed, you can bet that they won’t buy an F&I product from you again. Even though their claim is handled by someone else, you are essentially the face of that product administrator and the consumer will always associate that negative experience with a product you sold them.

With over 36 years of innovating consumer protection products, EFG Companies knows how to structure F&I products that increase your profit and keep enough in reserve to handle whatever the market throws our way. That’s why we are the longest-standing relationship for more than 28 years with our AM Best, “A” Rated underwriter. Find out how our consumer protection solutions and go-to-market strategies will give you the edge you need to succeed in today’s market.

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EFG Companies F&I Featured

New Power x2 Product Doubles the Benefits of a Manufacturer’s Powertrain Warranty

-90 percent of consumers surveyed said they would seek out a dealership that offers it-

Power-x2-LogoEFG Companies, the innovator behind the award-winning Hyundai Assurance program, announced today the launch of Power x2, a powertrain protection vehicle service contract that doubles the benefit of the manufacturer’s powertrain warranty.  The new contract delivers a vital dealer tool, proven by independent research indicating that 90 percent of surveyed consumers say extended warranties impact their purchase.

According to a recent EFG survey conducted by a third-party research firm, 62 percent of consumers said the manufacturer warranty significantly affects what make and model of vehicle they consider purchasing.  New vehicles are exactly the same within a manufacturer brand from one dealer lot to the next, including MSRP and the manufacturer warranty. This underscores the need for dealers to give consumers a value-driven reason to come to their retail location versus the competitor down the street or across town. A recent statistic released by JD Power Automotive Internet Roundtable — that consumers now visit only 1.1 lots prior to purchasing a vehicle, down from three lots just five years ago — only amplifies the dealers’ need to deliver  increased value to consumers.

As consumers continue to keep their cars longer than historical norms, ongoing maintenance costs are more top-of-mind when making purchasing decisions.  According to EFG’s study, 48 percent of respondents expect to replace their cars every four to seven years, which could extend their ownership beyond 100k miles.  By doubling the benefits of the manufacturer’s warranty, dealerships have the opportunity to use this trend to their advantage. Seventy-two percent of the survey respondents stated that they would go out of their way to purchase a vehicle from a dealership that is less convenient to them if that dealership doubled the benefits of their manufacturer’s powertrain warranty as a complimentary offering.

“In this highly competitive market, we know that dealerships need showroom traffic now, whether online or at their physical location, not six months to a year from now,” said John Pappanastos, President and CEO of EFG Companies. “Power x2 provides dealerships an immediate means of capturing market share based on current consumer wants and needs by moving past the price game to a more value-based conversation that motivates car shoppers to a transaction.” Dealerships can also increase fee income by offering exclusionary coverage that wraps around Power x2 for a specified timeframe, which includes:

  • the suspension;
  • the fuel system;
  • the electrical system; and,
  • the cooling system, among others.

Power x2 gives dealers a valuable toolkit to address each customer’s specific need when it comes to taking care of their vehicle and protecting their pocketbook. EFG also acts as a very strong extension of the dealer’s customer service through its in-house claims administration that operates according to above-industry standard target SLAs.  This translates to enhanced customer retention and loyalty.

Contact EFG today for more information on this new product and how it can benefit your business.

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Dealership Recruiting Dealership Training Economy F&I

Three Steps to Maximizing Dealership Profitability

Contributing Author: John StephensOn the other end of a harsh economic recession, it’s become very clear that Americans of today are drastically different from Americans in 2008. People not only tightened their belts over the past four years, they also completely changed their relationship with retail. And, today’s consumers are focused on keeping their savings intact, companies are concerned with fortifying their business to survive future economic challenges. One way companies like Apple and Google achieved this was through providing more value to their customers through enhanced service offerings such as cloud computing, which made it easier for customers to upgrade mobile technology with a free service which made back-ups and syncing easier and more efficient.

So, let’s stop and think about the retail automotive industry for a second.

Whether the economy is good or bad, consumers will still be in the market for a car. However, their needs for said vehicle may change. For example, with the latest recession, we saw the trend of consumers purchasing cars that last longer with better gas mileage. They didn’t stop buying, they just changed what they bought and how often they bought it. They also became less brand-loyal.

The search for more value now extends beyond the car itself to the dealership experience. With so many dealerships to choose from and less brand loyalty, you actually have a greater chance of increasing foot traffic to your store by focusing on your value proposition.

The first step to fortify your value proposition is to go back to the basics:

  • Hire Top Performers that consistently deliver results on the sales floor and in the F&I office.
  • Place those Top Performers in roles where they will thrive and train them to maximize their strengths.
  • Focus on customer service, not just the sale. The best sales people see themselves as advisers. They listen to the customer and address their needs with courtesy and respect.
  • Position your dealership as providing value beyond low interest rates. This ties back into customer service and bridges into the F&I office. Consumers are paying more attention to their return on investment just like businesses. Provide products and service that reflect their need to keep their savings intact.

Elementary right? Don’t kid yourself. You might be surprised on how little time gets spent on the basics of right people, right position, right training.

Next, re-evaluate the value you provide in the F&I office. You consistently review how many deals your sales team closes in a month, your product penetration, web traffic, etc. When it comes to analyzing your F&I products, are you taking a strategic approach to analyzing their benefits for your dealership?

Strong F&I products do much more than sell. They:

  • differentiate your dealership in the market;
  • help build customer relationships;
  • are designed with the customer experience in mind; and,
  • increase service retention.

When evaluating your mix of F&I products, think beyond product penetration to how your products enhance gross dealership profit by creating a customer experience that fosters lasting relationships and repeat sales.

Lastly, pay attention to your online presence. According to a 2014 DealerTrack study, consumers now visit 1.2 showrooms before making a decision. This represents a paradigm shift in the way today’s consumers shop for a vehicle. Gone are the days of consumers spending their weekends visiting one dealership after another before a final decision is made. Now, the majority of that research is conducted online.

With the majority of customers browsing dealership websites and customer review sites before walking into on average, one showroom, it’s vital that your dealership has a healthy reputation. A good online reputation relies on the active management of customer review sites. While gaining positive reviews is the immediate goal with these sites, the second most important aspect is responding to negative reviews. Negative reviews don’t necessarily have to give dealerships a negative image. By addressing the customer’s concern and taking the conversation offline, dealerships have a great opportunity to turn that negative review into a positive experience. Customers expect to see negative reviews on these sites, but what they pay the most attention to is how the dealership handles them.

Beyond customer review sites, it is also important to optimize your social media assets. Facebook and Twitter have become two of the biggest platforms for consumers to directly interact with companies. Big or small, companies from all industries utilize these sites to inform the public about new products, receive feedback, conduct product promotions, etc. A well-developed social media presence is much more than creating a page and posting content. It involves engaging the audience with content that’s relevant to them, encouraging discussions, and responding to their inquiries or concerns.

Your online presence, F&I product mix, and commitment to customer service each demonstrate a different aspect of how your dealership provides value. Online, you have the chance to provide that excellent customer service to both current and potential customers, further developing lasting relationships and increasing long-term profit. With strategic F&I products, you have better opportunity to maximize unit sales and dealership profitability while offering customers tools to protect their bank account from unforeseen circumstances. Meanwhile, by focusing on the basics of hiring and cultivating top performers, you significantly increase your opportunities to close sales and drive customer retention.