What is The Best Reinsurance Position for My Dealership?
What is The Best Reinsurance Position for My Dealership?
If you’re trying to figure out how to plan financially for the long haul while also taking care of your dealership, we need to talk about reinsurance positions—the dealer’s version of a 401K. There are different types of profit participation programs, and that’s important because each dealer has a different set of short and long-term goals. This conversation is best had between the dealer, their CPA, and the estate planning team.
Which reinsurance position is best for my dealership?
Of all the reinsurance positions you could consider right now for your dealership, the dealer-owned warranty company is the best bet.
The dealer principal owns a DOWC (Dealer Owned Warranty Company). The owner(s) control the program branding and select which F&I products are offered in their stores.
Given how we’ve seen the markets perform this year, the DOWC allows you complete control over your money. It’s a nimble way to manage your money; you can move it or change course at any time. You have total visibility into all investments and transactions. As the investment marketplace ebbs and flows, the dealer has options to either help shield them from loss or try to pounce on opportunities.
How does a DOWC work?
With these programs, the dealer owns a warranty and service contract company without administration challenges. A DOWC program can capture the highest percentage of underwriting profit and investable assets in relation to other dealer participation programs through lower fees and higher investment returns. At the same time, another team handles the day-to-day operations. And the company is taxed as an insurance company under federal tax laws, leading to significant tax efficiencies.
When you set up a DOWC correctly, you could enjoy tax-free underwriting profits for several years. The dealership could write off policy acquisition costs from the first year of operations.
Corporate dividends are treated as qualified and taxed at the capital gains rate. The right program can increase a company’s bottom line because there is only one all-in administration fee. There are no ceding fees, annual maintenance fees, loss adjustment fees, claims fees, run-off fees, non-disclosed fees, or “just because” fees.
Like ownership of a dealership, a DOWC program belongs to the shareholders. So, all the decisions are made by the management team. They pick the F&I products that work for the dealership and its customers, from service contracts and pre-paid maintenance plans to road hazards, theft deterrents, and paint and fabric protection.
The ownership or the management team can invest money immediately, and money starts earning interest immediately.
If you’re considering a reinsurance position for your dealership, a dealer-owned warranty company is a strong contender. With a DOWC, your sales team will be able to provide better coverage on service contracts and find higher service retention. Customers can have an authentic red-carpet experience based on how you set the program up. All these things mean increased sales and increased profits for your dealership.
Contact us for more information.
