With 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.
