With the first quarter behind you, it’s time to evaluate your progress and plan for the rest of the year. As you seek to continually improve your auto lending processes, and determine new avenues of profit, you are probably conducting due diligence in determining whether providing consumer protection products with your loans would benefit your institution. In this process, it’s important to ensure that any product administrator with which you may choose to do business will enhance your credibility with dealerships and consumers. The best way to determine this is to start by looking at their reserves and whether their products are structured to handle any volume of claims no matter the market conditions.
In your review, keep the following questions in mind:
- Is the product provider backed by an A.M. Best “A” Rated, underwriter?
- How long have they been with their current underwriter?
- 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 adequate in order to ensure that your customer’s claims are handled for the duration of the contract. One of the easiest ways to determine whether a product administrator will benefit your business is to look at their relationship with their underwriter.
First, find out their carrier’s A.M. Best Rating. This rating signifies the company’s financial strength and ability to meet its ongoing insurance contractual obligations. Simply put, if their underwriter is a reputable company that follows through on its obligations, it’s highly probable that your product administrator will as well.
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. Why did they make the change?
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 may be inadequately reserved, 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, the chances exist that they could be mishandling the structure and pricing of their products.
Another area to evaluate is their reserve structure. While inexpensive products are attractive initially, 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 potential claims issue that adversely affects your customer.
One way to determine whether the reserves are handled appropriately is to find out how the 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.
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 their request to be processed, you can bet that they will associate that bad experience with both your loan and the dealership who sold it. This obviously negatively affects the customer experience. Even though their claim is adjudicated by a third party expert, which is a positive, your dealership partners and your brand are essentially the face of that product administrator.
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’ve maintained one relationship with an AM Best A rated insurer as our underwriter since our inception. 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.
