#413 - Auto Dealer Reinsurance: How to Optimize What You Already Have
The Independent Dealer Podcast
#413 - Auto Dealer Reinsurance: How to Optimize What You Already Have
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Term
down payment
A down payment is the money you pay upfront when buying a car. It lowers the total amount you need to borrow.
Term
CPDI program
The CPDI program is an insurance plan that helps protect your car loan in case something goes wrong, like losing your job or getting sick.
Term
monthly payment
A monthly payment is the amount of money you pay every month when you buy a car on a loan. It helps you pay off the car over time.
Term
buy here, pay here
Buy here, pay here means you can buy a car and get a loan directly from the dealership instead of a bank. It's often for people who might have trouble getting loans elsewhere.
LIVE
Let's say you had a million dollars barred at 14% which is not crazy, right?
We know that dealers out there have some of those type of loans, right?
Okay, and let's say they had a million dollars in their reinsurance coming. Well, that million dollars of 14% is
$140,000 in interest a year and you could borrow it from your reinsurance company at about $50,000 in interest of the year.
So you're saving $90,000. Yes, real money. That's real money and that's that's
real money and that's not bigger profit. That's real money. Yeah, and it's cash flow and you forget about that.
That interest you're paying out every month is cash flow.
Hello and welcome to the independent dealer podcast education by dealers for dealers and Brett, the third the third amigo, the third leg to our tripod.
Yeah, he's there. He's looking good. His internet sucks, but I guess in Ohio, that's what happens.
It's cold. Everything gets slower when it gets cold.
Yeah, when it's tied to the internates Ohio State's schedule. So when they play bad, they slow everyone's bandwidth down this punishment.
That's all that NIL money.
That's awesome. Brett, but thank you for joining us today, man. I want to go over.
We are going to discuss reinsurance advanced advanced reinsurance with the high level graduate
class like we're going to go and get our doctorate today in the industry of reinsurance because
everyone who's listened to this podcast knows reinsurance. You guys every single week, we pitch it as an ad.
We pitch it in things. Every dealer says it's the best thing they've ever done, blah, blah, blah, blah, blah.
Like, so if you're listening to this and you're going to continue to listen, you've already got your reinsurance company set up.
You've called Buckeye. You're up and running one month, three months, six months, six years, 60 years, whatever it is.
Okay, Brad, that's going to be the framework. So now let's discuss some optimizations.
Luke and I, we'd both had our reinsurance for a while. Luke's on his way out. I'm still riding it.
And we got a lot of dealers that are probably growing. But what are you seeing? Give us,
first off, some tips of how we're optimizing it. Let's talk about some of the features that we could
do kind of along the way to like make a little more money and where we hit that balance.
And then I want to talk about what do we do if we have reinsurance money, right? Cause that's kind of a big,
that's where I'm at. I'm stuck with that. I honestly don't know what to do with it.
So Scott, so much money. He doesn't know what to do with it.
No, it's scary. I got it sitting there and I'm like, I don't know if I move it out of there.
Do I get in trouble? What if I do it wrong? What if I forget about it? Like, I have no idea.
So just forget about it. I just got, I was going to be an Austin and I'm just going to forget about it.
So, Brett, first off, man, what advice would you give for those long time
dealers that have been in it that maybe need to optimize the way they're handling their
reinsurance company? Yeah, good question. I've actually given this talk to a couple of small
groups, you know, 20 groups that have kind of asked the same thing. I've got, you know,
there's a couple of groups out there that have been together for a long time and
some of those guys are at that, you know, I'm ready to get out or, you know, with what we've
talked about a couple of times is, you know, the Parkers, you know, Stephanie and Don out in
Tennessee actually sold their business and utilized the reinsurance company as a way to do that.
And that's going really well. But the topic is kind of like, I've got a new, I've got a
reinsurance company now what, right? Like now, what do I do with it? Yeah. And those are good
questions. And there's a couple of different areas to do. Like the first thing is, right,
I've got a reinsurance company. And I'm trying to figure out product wise, am I doing what makes
sense? Right? Because when you first start a company, you start in, you know, if you're by
here, pay here, it's like, all right, I'm going to do CPI and a warranty. And then it kind of grows
from there, right? And if you're a retail dealer, it starts with just service contracts. And then
the 90 day warranty gets added in later, and then other products get added in after that. And,
you know, something on the retail side that's been really popular lately is everybody adding
all the ancillaries, tire and wheel, ding and dent, bundles, all things like that, just
more opportunities to make a little bit of profit. And so I think the first thing you should focus on
if you have a reinsurance company is, you know, just like with any business, don't go open a
second location, don't go look for any am I squeezing as much water out of the rock that I have
before I do anything else. And that really comes down to
what products are you using? Are there any ones that you're not using? And that's simple, but
that in this time of year, it's, have you, have you gotten with your provider to look at how they're
performing? What are your loss ratios on each individual product, right? Do you have a product
that's running too hot? And maybe it's an opportunity to put more premium in, because it's
completely justifiable because you got a nice loss ratio. And also, you know, the opposite is true
is, do you have a limited warranty that, you know, maybe you're we're reserving too much or
we're not utilizing it enough or you're forgetting the file claims, you know, so those are all really
good things to start with is based on the current products that I have, am I getting the most benefit?
Are they working the way that I thought they were, they were going to work, right?
Yeah, is that, I mean, is that coming to y'all and y'all pulling the
the loss ratios? I mean, where should our loss ratios be? That would be a question that
I would have for you, because I think that I think my reinsurance is working properly and
I don't know either. And I think my CPI, I think my CPI loss ratio is, is, you know, below the 50%.
But where should my warranty, you know, where should my warranty loss rate be? Where should
my gap loss rate be? How do we know these things, Brett? Yeah. And again, it comes down to specifics,
right, of your dealership. So a 90 day limited warranty obviously doesn't have nearly as much
risk as a two year one, right? So that the loss ratios are going to be the what you would expect
them to be is going to be different. And it's one of those things where it's like, Hey, if I'm in that,
you know, 20 to 30% range, I feel pretty good, you know, or even 40% that all of my claims are
being paid, I'm protecting my portfolio, or if I'm on the retail side, right, I'm making good
money, I'm generating revenue. But I'm also my reinsurance company is profitable, right? And
that's where we want to, that's where we prefer to have our profit in that, you know, deferred,
you know, special company. If your loss ratios, 80, 90 or 100%, then am I not, you know, realizing
that I shouldn't be putting, you know, more money in there? Or is that an opportunity to look at
what the underlying cause of that might be? Which is, okay, hey, I've got a 90 day warranty.
And man, my claims on that are really high. Okay, well, guess what? That means we have a
reconditioning problem we need to look at. So how do we dig into that? And these are the types
of things that I do a lot is, you know, as you guys are aware, I'm doing everything I can to try and
still act like a dealer and have my dealer hat on and, and not just be a vendor and say, Oh,
you know, you're, you're sending me money. And this is how much it's making. But like, you know,
what is the story telling us? So high loss ratios? Absolutely an opportunity to figure out why are
they high? What's costing me money? Why are my claims so high? What's my you know, we track frequency
and severity of claims and all of that. And when we're looking at all of our clients across the
country, man, it doesn't matter if it's buy here, pay here or retail, you'd be surprised how similar
all of our businesses averages ours. So if you're an outlier, you stick, you stick right out, you
know, and if your loss ratios are too low or too high, rest assured, you know, Jake, or you know,
the accounting team is gonna is gonna send us a message and let us know. And then that's kind
of how we try to stay on top of that with our clients. And so that makes sense when it comes to
to the warranty side, like I can adjust my recon or I can change the cars I'm buying because I'm
selling a bunch of BMWs and Mercedes and they're tearing up and it's costing my clients so much
money. I can adjust those when it comes to like CPI and adjusting claims ratio is that only the
only way to fix that is to go up on the get higher penetration or go up on your CPI amount.
Yeah, I mean, it's both of those things, right? It's the most common mistakes with CPI and everybody
knows this. And I feel like everybody makes this mistake when they first get started is
it's not for everybody. It's just for the people who can't get insurance. And then we create that
pull of risk initially of like the worst drivers on the planet who just hit everything. Tell me about
it. So, you know, increasing the premium that you're going to charge, you know, to be proportional
to the value your ACVs of the cars you're selling, obviously that makes sense. I would say the
overwhelming majority of our clients have gone up. I mean, when I first started CPI back in the
good old days, it was 76 bucks a month. And now, you know, the average is probably almost double
that. But, you know, what's the alternative, right? 350 to 500, 600 a month car payments.
Let me ask you, Brett, what are you seeing? Because I struggle with that right now. We've
given me some tips and maybe other dealers any input there on how to get that participation
rate up. Do you think it's, I mean, is it a sales issue? Like my customers, my salesmen aren't
selling it enough? Is it that I may be priced too high? Like, what are you seeing the real issues
the dealers typically have when they stall out or end at such a low penetration? Yep. It's almost
always a point of sale process where what they're doing is they're putting the insurance quote
ahead of like the end of the transaction. And it becomes, you know, hey, get your insurance quote
and if we're cheaper, we capture them. Or if it's really expensive, we capture them and that's good.
So what we've been doing and having a lot of success with is if your sales process, you know,
the traditional sales process was they come on the lot. Do you guys require insurance? Yes.
We underwrite them. We want to give them the car. Congratulations. You're approved. Your payments,
$225 every two weeks or whatever it is. And then, you know, hey, and then, you know,
they agree to it. And then we go and get insurance. And then after that, you know, we find out what
a real down payment is. Because obviously the down payment for the car insurance almost always
comes out of the down payment, you know, for the vehicle. So if you switch that up a little bit,
it becomes, hey, congratulations, you're approved. Sign here. Awesome. Hey, folks, how are you planning
on doing your down payment today? Is that going to be cash or card? And then from that point,
I'm immediately collecting the down payment, receding it. That's the first opportunity to initiate
the opportunity for auto pay. And then when I come back, the conversation now becomes, hey,
folks, have you set aside any additional money for insurance? Or are you going to take advantage
of our CPDI program today? It goes through the roof. How about, Brett, if you present the
initial payment. So this is what we did for a long time. We're presenting the initial payment
with everything already added in. And then, but we tell them what's in there. And of course,
we can back it out if we need to and back stuff out. I think a lot of people try to sell customers
on the lowest monthly payment they possibly can. And they miss this advantage in there.
I think buy here, pay here, and or retail. That's a pretty kind of way to do things. Hey,
congratulations. We got you approved. This is your payment. And it includes two-year service
contract gap. And then your CPI would be an additional $48 every two weeks. Should you choose
that option? And again, you guys know, as well as I do, we've talked about selling products and
back end products. As long as it does a dealer, you're disclosing that they're optional and you're
not making anything a condition of the sale. I think having a strong aggressive sales process is
the best way to not only protect your portfolio, but also to generate profits. And that doesn't
matter what kind of dealer we are. And this is definitely not a buy here, pay here thing or
retail thing. If you go to a new car store, you're going to go in that box and they're going to
weigh you down. And you're going to have to tell them no three times to not to not buy that extended,
extended warranty on top of the warranty from the factory brand. Get it? And so we're not being,
we're being less aggressive than the new car store and offering probably better coverage. And a lot
of it is then some of the new car stores are offering. So don't be afraid to present everything.
You got to sell a hundred percent of the product, a hundred percent of the time,
and CPI is the product. And so you need to be selling it every time.
Everyone, just a moment here to talk about BlitzPay. BlitzPay is my payment process provider,
PPP, PPPP, whatever it is, but they're wonderful. They get the money in the bank and that's really
what matters. And it's simple to use Jeff. It's so simple and it helps us with our collection
process. Yeah, you know what I've really liked and I'm going to fine tune this even more is their
cash pay network, which is a crucial component because we do have a lot of customers that want
to pay cash, but I don't want to take cash in the office. It's dangerous. It's scary. I got to make
deposits. So we're pushing it more and more and more. And then there's always the few customers
that don't quite understand technology and push back, but we're educating them more frequently.
And it's really making my anxiety go down because I don't have large cash deposits in the end of
Friday. Yeah, I'd hate for you to lose any more here. Yeah, yeah, it's stressful. But the self-help
options are really what makes the difference. You don't have to have customers calling you,
hey, run this card, run this card, run this card. No, they can help themselves because the portal
is so easy. It's mobile friendly. It's all right there on their little phone, which everyone has,
and they can take care of their payments themselves. That's the most important part.
Yeah, everybody's called BlitzPay. Get them to hook you up.
I feel like I should know this answer, but can I bonus my salesman for placing a CPI policy?
You really shouldn't because it's a point of sale thing. And me, I've had people ask that,
and do I know people who do it? CPI makes the sales process so much easier, and you're typically
paying those guys really well anyways, and you're bonusing them for the sale. So you shouldn't really
have much of a need, but also from a compliance standpoint, we're not selling insurance. We're
offering them the opportunity to enroll in the program. And so I think it's a key thing from a
compliance standpoint. The smartest way to do it is to not bonus for point of sale placements.
For sure. And there's so many salesmen that have been doing this long enough to know
how many deals they have lost because of insurance. When you give them this tool and say,
hey, this is a tool for you not to lose those sales, I promise you, they're losing one or two
a month because of, a lot of times, because of insurance. So this is just another tool or tool
belt that really, really can help out. Yeah. And I mean, every retail dealer, buy here,
pay here, dealer on the planet has been talking about what a difference it would make for those
extra three to five cars that they could sell every month. And for the buy here, pay here,
dealer, CPI from not losing a sale because of insurance, not repolling a customer because
you have the ability to midterm place insurance. And then just the way that it protects the portfolio
is it just makes a lot of sense. It really does. But again, that's the overarching thing here is
that if you've got a real insurance company, you really need to make sure that your products,
your processes, and everything are customized to your specific dealership, what you're trying to
accomplish. I mean, that can be different. I mean, if you're a 20 year old independent dealer who's
got Capital One and Ally and every bank on the planet and credit unions, your ability to sell
back end and your ability to price that back end is going to be completely different from a guy who's
sub five years in the business and still in that he's in that subprime trap, right, where he may
be profitable, but none of the banks will take a chance on him. And one of the things that I think
gives us that big advantage is being able to customize the product specifically for those two
guys so that you can make it work for them, especially when it comes to what you're going
to reserve or on the service contract side, having being able to customize what the costs
are going to be, right? What's this two year service contract and this three year service contract
going to cost me because, you know, a buy here, pay here guy or a, you know, relatively new detail
guy runs a VIN and the cost on that car comes back at 1800 bucks. How do you make that work?
Right? It's just there's no room to fit it in or it doesn't make sense from an expense standpoint
for a buy here, pay here dealer to shell out all that money and have no control. So that's
one of the reasons why reinsurance is really good and customizing that control, constantly
reevaluating what you're charging yourself to make sure again, what's this doing to my cash flow?
What is this doing to my year end? Is my reinsurance company doing well? Do I have a creditor
or lines of credit? Are they still happy with the profit that I'm showing? All of those things
have to be considerations. I've heard that before when a dealer is trying to to re out with a bank
or something, they, the bank starts questioning their their reinsurance cost. Is this something
you hear because we're talking about now, you know, bank lines getting harder and harder to
nail down? Is this something dealers should be worried about or what does that look like in
today's? I don't think they should be worried about it, but I think assuming that at the end of the
year, it's all just going to work itself out. And, you know, if you're reinsurance, if you're
making money and you're reinsurance company or other things that you're doing is set up in a
way where it's looking like you lost, you know, 100 grand a year, it's going to be hard to go to
anybody and get money. And, you know, do we have people who have very aggressive reinsurance companies?
Sure, we do. Are they able to get bank lines of credit? Of course are the bank banks know what
these are. They understand the process completely, but you still have to be smart about it. And,
again, that that comes into, again, constant communication with whoever you're working with
about your program. And at least once or twice a year, you should be taking a look at it to see
how's it functioning, how much profit, you know, is going into the reinsurance company.
You know, what is the cash flow at my main business doing? And then again,
you know, strategically, when it makes sense to accessing that money in the reinsurance company
in the form of loans or lines of credit, you know, one of the things you see a lot of people doing
who don't have reinsurance is, you know, you meet down with your CTP at the end of the year,
he tells you what your liability is, and then what do they all do? They run out and buy a bunch of
stuff. 179. Yeah, 179, man, you're buying, you know, you're getting a new truck, the wife's
getting a G wagon, you go out and you buy a bunch of cars for the lot, they're prepped up for tax
time. This is awesome. Yeah, more boats. You have too many boats. Too many boats. You buy your boats,
but then come January, February, and March, what happens to everybody? They're completely strapped.
You sell the boats. You sell the boats, right? And you never even made it till spring. So, again,
if you're working with your plan properly and you're well capitalized in your reinsurance company,
then you should be using that, especially nowadays to, you know, de-leverage if you can.
How many guys we talk to that, oh, I still owe 600 grand on my dealership, you know, we'll meet
somebody who's been doing reinsurance for a while and maybe they didn't know that they could do these
things and they've got all this money in their account. It's not invested. It's not in a money
market account. And they owe, you know, $800,000 to people at 12% and they got $3 million in their
account just sitting there doing nothing. Okay, let's go down that. Yeah, let me let me slow you
down on that real quick because I know a guy who struggles with that situation right now that
let's just call him a friend has some reinsurance money that he doesn't know what to do with, right?
All of a sudden he's tried not to look at his reassurance account because A,
his rep doesn't call him as often as he should. I just sent him an email, so we'll fix that problem.
B, I kind of like the idea of it just being like a piggy bank, like, hey, I don't want to look at it,
I don't even want to think about it, like I want it to be forced savings and someday whatever.
So that someday's come. What would you recommend to this friend to do with that reinsurance money
if he has fairly, of course, first off, it's get out of high interest debt, right? Like,
I think that's probably the number one recommendation you would give any dealer, right?
If you've got a whatever hard money loan, you've got some sort of a bubble that's resetting or
you owe family members or investors some sort of money. That's what, over 8%?
Yeah, I mean, a lot of those lines, especially now, if they've borrowed that money in the last
couple of years, the interest on it is high. So if you can pay that off with your own money,
and then pay yourself back money at a lower interest rate, I mean, that's day one,
that's a no brainer. If you've got a bunch of money in there that you don't need to run the
business and you're like, what's the first step? That would be the first place that I would look
because you just don't ever know when the next COVID-27 is going to happen or anything to your
business or interest rates going to go way up. Let's just talk about a million dollars.
Let's say you had a million dollars borrowed at 14%, which is not crazy, right?
We know that it does, but we know that dealers out there have some of those type of loans, right?
And let's say they had a million dollars in their reinsurance company. Well, that million
dollars of 14% is $140,000 in interest a year, and you could borrow it from your reinsurance
company at about $50,000 in interest a year. So you're saving $90,000.
Yes, real money.
That's real money, and that's not a bigger profit. That's real money.
And it's cash flow, and you forget about that. That interest you're paying out every month is
cash flow. I get that, and that seems like an obvious one. If you've got 14% money somewhere,
get that reinsurance money over there and get that paid off, right? That's right.
When does that start having a diminishing return? Because if I have, say I have some
owed money that's like 6%, is that where you say, hey, and you said an interesting thing, Brett,
if you don't need that money to operate your business, and that's the gray area and the
uncertain area that I fall into, is I think, okay, I could pay off that 6% money. I could
pay back even my real estate loan that's at 5% and paid out my debt on my real estate,
or what I'm really worried about is I'm going to need that money
if or when shit hits the fan, or if I see an opportunity to grow my buy here, pay here,
and I want to double down because the economies hit rock bottom and we're on our way out.
So help me think through that. Do you have any advice for a dealer in that situation that's like,
well, I don't need it right now in my business, and so I'm just going to sit on it like a little
nest egg, but now I feel guilty that all I'm doing is just letting it sit there. It's not
the thing that makes this conversation the most complicated thing to talk about when you're like,
okay, we're going to do this for the next 40, 45 minutes, is every dealer situation is different.
Somebody who's like we talked about earlier, a 35-year-old guy who's looking to grow his
business, he should absolutely utilize that business in a different way. A guy who's got
money in there he doesn't necessarily need. It's like, okay, great, what are you doing with it?
First and foremost, obviously, is make sure it's at least in a money market account
earning use of interest at an absolute minimum. We set up pretty much everybody that way now.
The second thing is, all right, I've got some surplus funds. Are we talking about opening up
a brokerage account in the name of the rent insurance company and investing that money?
And now we're not earning money market rates of May 4%, but we've got an opportunity to do
12% or 15%, 18% depending on how aggressive you want to be with those funds. And that's
all perfectly fine as long as we're not locking it up in CDs or Munis or Bonds and you're not
dumping it all into Bitcoin, there is a lot of complaints. Hold on. But you can't do that.
You can't do that if you do it properly and you have enough cushion, right, Brett?
Yeah, for sure. It's all about just communicating with your provider, making sure you're adequately
reserved, but you should absolutely make the money work for you. We see a lot of real estate
investments, flipping houses, rental properties, apartment buildings, again, personal uses,
paying off home loans and paying yourself back. There are all types of things that you can do,
but if you're not having those conversations, no matter what your situation is, you're definitely
missing the opportunity. So the most liquid options would be a money market account
or a brokerage account and you want to dump it in an index fund in the meantime.
And you can do short-term CDs as well. Do you want to lock it up for a year or two years? Not
if you don't have enough to not do that, right, Brett? Those money markets should be just funds
that you need for your reinsurance to operate, correct? Yeah, so it's like what we typically
do and my whole thing is whatever you're required to have as an adequate reserve,
right, whether it's $250,000, $500,000, whatever, or maybe for you, it's $75,000, right? You've got
that $75,000 in your money market account. Anything in excess of that, if you're in that
mindset, yes, let's put it to work, right? Let's use that money towards paying things off or
investing it or whatever makes sense. And again, everybody's program is going to be different,
right? So if you're doing 20 cars a month and you're a retail dealer versus we have
retail dealers doing 600 cars a month and we have guys whose average expenses for their warranty
programs is 20 grand a month and people who it's 150 grand a month. So as long as we're
communicating and making sure that everything we're doing, we're doing it compliantly,
then you guys, there's a lot of opportunity to put that money to work for you, whether in your
business, for yourself personally, or even in other business ventures that you may have.
In your reinsurance company, own property or things of that nature or do you load it to
yourself and then you buy the properties and things? Yes, if you've got like a land management
company, then you would loan the money to Buckeye, Brett Real Estate and then they would do whatever
and then Buckeye, Brett Real Estate would obviously make the payments back to the reinsurance.
If you wouldn't want the reinsurance company wouldn't really be in the business of holding
real estate, it would just be the lending, it would lend that money back to your LLC. You
operate it as a hard money loan or a lending institution. Hey guys, interrupt the podcast,
make sure you know now is the time, last chance, tax max. If you're not signed up with them,
we're right in the middle of Q1, all the W-2s should be hitting the ground here. The very last
ones, I think January 31st is the deadline, which reminds me how to get mindset now.
They're going to get their W-2s, they're going to file, it's not too late to get signed up with
tax max and take advantage of some of this money. Yeah, it's sales, it's collections, it's side
notes, it's everything, people that have repo, all these things that you can use as tax 24,
you got to use it though. You can't just say, oh, you know what, we're signed up with tax max.
Let's use it, y'all. Get everybody going, make sure yourselves, people are trained to do it,
trained to ask for it, make sure your collectors are trained to ask for it, because this tax money
is fleeting, buddy. It goes away so quickly, you need to get it in your bank. Yep, you don't want
to regret not doing it again. You probably didn't do it last year, you didn't do it the year before,
you've ignored us for many years. Get on it now, make it happen, larger down payments, you're going
to collect more money upfront. It just helps the customer get qualified faster. If you're a retail,
helps you buy here, pay here guys, have less cash in deal. So call the guys and girls at tax max
today, this is your last chance. Interesting. So it sounds like I need to have a conversation about,
or my friend needs to have a conversation with someone there, a buck eye about how to get that
money out, and into even a money market or a short term CD, or just dump it all into Bitcoin right
now. Think about the differences in operation between any type of dealer who's operating on a line
of credit and with a floor plan, somebody else's money, and somebody who's operating completely
self funded. Those are two completely different reinsurance setups. And that's the idea with
being as highly customizable as possible is what products, how do I want them to work,
what do I want my reserves to be, what do I want to show my profit. That whole deal for retail
dealers and not having to have a floor plan and amount of money that could save you,
and you're paying yourself, that could be a million dollars a year. So many great things
to do to invest that money. Yeah, I mean, we've had several retail dealers and buy,
here, pay, here, dealers who started this a while ago, put themselves in a position where
they no longer needed their $2 million dollar line, their $3 million dollar line, their $4
million dollar line, and they were able to get off of it and pay themselves interest.
And then, we talked a little bit earlier about, we worked with our first buy,
sell with a dealer in Tennessee where one of our clients sold the dealership to another client
and the reinsurance company funds and setting up multiple programs was an intricate part of
being able to make that work for both of them. And again, it's just a conversation.
One of the things I always tell everybody is you're never going to ask us for permission
on how to use your money or how to access it, but you should always ask for guidance.
And that has to happen at least once a year with where are you at? What's going on? Are you performing?
Are you getting ready to sell? Are you not? Do you want to grow? Are you going into sunset?
Are you getting ready to start selling notes? Because you don't want to collect anymore.
Awesome. Then we should adjust the way that your current products are because if we're selling them,
then maybe we don't want as much coverage or things like that. It really just comes down to
what are your individual efforts? What are you trying to accomplish and then
setting up the reinsurance company to facilitate that as best as it can?
Brett, if I were about to close my dealership and I had this reinsurance money sitting over there,
tomorrow I close my business and what happens to my reinsurance coming?
Yeah. So good question. That's actually come up quite a bit lately as well.
So the first thing that would happen is obviously it goes into what's called runoff,
meaning I'm no longer accepting any new risk, but you still have risk out there, right? So CPI
after 30 days, obviously that goes away. All that money is earned out. Nothing to worry about there.
But if you've got 12 months or 24 month warranted ease or if you're a retail dealer
and you're out there selling two, three and four year service contracts,
you still have a significant amount of risk. So that is kind of a headache, but at the same time,
it can also be a really good thing, mainly because what it means is if I've got two years of coverage
for essentially just the cost of managing the reinsurance company,
we've got two years to figure out what we're going to do with that money.
What are we going to invest it in? What are we doing? You're still getting the benefit of that
tax deferral. What happens in most cases, and I'm actually working with someone right now who
sold their business and then within 12 months ended up buying another business that also has
the ability to reinsure. So even though it's a different business, that company is going to
start seeding risk again, which means it gets the benefit to stay open. So there's all types of
opportunities for how you can continue to appreciate the benefit of the tax deferral.
But worst case scenario or best case scenario is two years from now, you've accepted no new risk,
but all of your other risk is gone and you've got a million and a half dollars or X dollars
sitting in the reinsurance company. We would file the last tax return, basically shutting that
company down, and then that money becomes taxable at long term capital gains rates.
And then I can plan for that, yeah, and then it just goes away. And buy multiple boats,
helicopters, planes, whatever. Whatever you want. The remote control version. Take some of your
closest friends on vacation, whatever. Fuck out, Brett, most of vacation. He likes Italy. I'll
tell you, I could use it. Yeah. Luke bought me dinner the other day when he was out here with
his reinsurance money. Wow, it's consulting out there, Jeff. Come on. Best spend he's ever done.
Brett, so dealers that want to have more of these conversations, learn more, talk to you.
Now, we've got some conventions coming up in 2026. Most importantly is the Buy Here Pay Here United
convention. I'm on the dealer advisory board. So the education is going to be a top notch.
Guarantee that this year. Brett, what else do we have coming up and maybe speak more about
what we're going to expect there? Yeah, so we've got quite a few big things happening
this year in 2026. But Buy Here Pay Here United this year. And obviously, as we announced, merging
with LHPH this year at Capital this year, they've done a show every year, which I've gone to.
It's a great show. But bringing these two industries together, I'm pretty excited about that.
Wait a minute. Hold on. Hold on. They merged the Buy Here Pay Here United and the Lease Here Pay Here
Summit into one show? Yeah. We don't get to go to San Diego and more San Diego.
I'm sure we could find another reason to go and talk about something.
I thought it's him. We'll figure it out. That's all right. One last weekend away.
That should be a good show. We've actually seen a lot. Our Lease Here Pay Here business
has increased pretty dramatically, I would say over the last six months. We see a lot of large
retail dealers, independents, and also new car franchises really taking advantage of
that Lease Here Pay Here as an option with that kind of more expensive but not necessarily
certified pre-owned vehicle and trying to attract a different customer. So that's been really good.
And then again, just continuing to make some changes to our product. One of the things that we
are offering to is we're really expanding on our walk away service contract options.
You'd be surprised, or maybe you're not, is we have a lot of clients who they have
reinsurance company. They've had them for years. They're customizing their deductibles and they're
customizing their costs for their service contracts and all of those things. But they still don't
reinsure everything. So having all of the different options and trying to be a one-stop
shop is something that we've really focused on in 25. And we're going to be rolling out some
things in 26, which should give everybody all the options that they need under one roof. So
we're pretty excited about that. Interesting. Yeah, I think there's a lot of stuff we don't even
think about. Again, you talk about depending on your phase of where you're at in your dealership
and how much money you can put into that reinsurance company. As you optimize one, like you said,
you squeeze everything out of that one product, then you add another product and you're like,
Oh, I never knew I couldn't reinsure for that. I know me, I didn't add VSI until like two years
ago, right? I didn't even, didn't even don on me, wasn't there, wasn't on the radar. But as
tax burden became larger and larger, you guys said, Hey, do a vehicle single interest insurance
policy on all your buyer payers for the year, you know, huge savings for me. So yeah, I mean,
and, you know, at its core, reinsurance is two things. One, it's identifying the risk you already
have and the checks you're already writing and saying, Hey, is this one we could write to ourselves?
Is this something I'd prefer to have more control over? You know, CPI way better to deal with CPI
than car insurance service contracts. And VSI is one of those, right? Like everybody has
impound fees and, you know, total losses and skips and things like that. And so it's an expense
that you have every day. And nowadays, more than ever, especially if you're out there with a line
of credit or something, portfolio performance, delinquency and charge off really, really matter.
And it could be the difference between a couple of points and interest, no matter who you're
loaning money from. So anything you can do to make that portfolio look better is really important.
And, you know, this is a hard lesson for a lot of the smaller, homegrown guys where, you know,
they got up to 200 or 300 accounts and they're starting to make some real money, and they're
completely self-funded. And then they want to go to the bank to get a line of credit. But for the
last five years, all they've been doing is just charging everything off. And then their portfolio,
yeah, you're making money, but you can't prove it. It's terrible. It looks like you're,
you know, just charging everything off. And so accounting for the transactions in a way that
makes sense is super valuable. And it's becoming more and more important as the ability to lend
money and need money to grow is getting harder and harder. So can Luke reinsure the liability for a
sexual harassment lawsuit? Oh, I don't know. I'm not sure that's risk that certain people would
want to take. Oh, I don't have that problem. Can I can I reinsure for my broken window policy
of my golf game? Because I feel like I'm paying for a lot of windows lately.
That's funny. Hey, if we could do that, Jason would be using as an excuse to go to every golf
court in the country and pitch. I guarantee you that. Actually, I bet you there's something there.
Okay, we've spent a lot of eight teams. I really appreciate your time, Brad. This has been fun,
super informative for my friend. I'm going to make sure they know we look forward to seeing
you buy here, pay here, summit, lease here, pay here. Are you guys going to hybrid the name?
Do I got to hyphenate it like you're some sort of I hear pay here, United summit, buy here, pay here,
at least they're pay here, you know, I don't know. That's a that's a Sean question. You know, they
don't they don't involve me in those things. They just don't get a plane and yeah, you don't know
who has bread. Yeah, because he would he would name it he would name it Buckeye, Brett, United.
You know what? It sounds pretty good. I like your heads up. I'm a trucker. Yeah, kippy purple,
no more. All right, guys. Hey, good times, Brad. We'll see you there. See you guys later. Have a good one.
About this episode
Exploring the intricacies of auto dealer reinsurance, this episode dives into optimizing existing reinsurance setups for maximum profit. The hosts discuss strategies for managing cash flow, evaluating product performance, and making informed decisions about using reinsurance funds. Notable insights include the importance of understanding loss ratios and the potential for significant savings by borrowing from one's own reinsurance company. With practical advice tailored for both new and seasoned dealers, this episode offers a comprehensive look at leveraging reinsurance effectively.
Original notes
Most independent dealers already have a reinsurance company. The problem is knowing what to do after it’s set up.In this episode of The Independent Dealer Podcast, we go past the basics and into advanced reinsurance strategy for dealers who are already in the game. If you’ve been running reinsurance for years and still wonder whether you’re maximizing it, this conversation is for you.Bret from Buckeye joins us to break down how experienced dealers should be optimizing their reinsurance companies, from product performance and loss ratios to CPI penetration and cash management inside the reinsurance entityIn this episode, we cover:How to evaluate reinsurance performance using real loss ratiosWhich products dealers commonly underutilize (and why it matters)CPI penetration mistakes that limit profitabilityHow point-of-sale process impacts insurance enrollmentWhen and how to adjust premiums, coverage, and reservesWhat to do with excess reinsurance cash beyond letting it sitUsing reinsurance funds to eliminate high-interest debtHow reinsurance fits into dealership exit planning and buy-sell scenariosWhat happens to your reinsurance company if you sell or close your dealershipThis episode is ideal for:Buy Here Pay Here dealersIndependent retail dealersDealers with existing reinsurance programsOperators focused on cash flow, portfolio protection, and long-term planningIf you already have reinsurance and want to be smarter with it, this episode will help you see what’s working, what isn’t, and what to fix next.Support the businesses that support the podcastBuckeye Risk ServicesReinsurance, tax planning, and long-term wealth strategies built for independent dealers.BlytzPayBuy Here Pay Here payment processing with fast funding, text-to-pay, and real support.Tax MaxTax season systems that help dealers sell more in Q1 with same-day advances and customer-facing tax solutions.Ituran GPSGPS and payment technology for BHPH and retail dealerships focused on asset protection, recovery tools, and customer management.Follow & ConnectWebsite: www.theindependentdealer.comEmail: [email protected] Group: @independentautogroupLuke Godwin: @lukegodwinJeff Watson: /sendtojeffwLike, subscribe, and share with another dealer who needs a fresh perspective.
The Independent Dealer Podcast
Jeff Watson & Luke Godwin
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41:19