Steve Pearl, Bruce Osborne, Randall Rabbitt and Jay Sharpnack dissect the competition and give advice on how to win when it comes to reinsurance

During one of the sessions at Agent Summit 2014, an expert panel explored what moderator Steve Pearl, president & managing principal, The Oak Group described as the “opaque” topic of reinsurance. Pearl, who has a background as a CPA, auto retailer, and options trader opened the session by promising the panel would go after the competition and shed light on the complicated topic of reinsurance. “I have a pretty good financial background,” stated Pearl, “but every time I think I really understand reinsurance, I read a new prospectus or new offering circular and realize someone else has got a sharper pencil than me.”

The panel narrowed the discussion into three areas:

1. How do you find out what information a competitor is bringing to a dealership – what questions do you ask and where do you look?

2. What are the idiosyncrasies to look for? How do you compare your products to a competitor's? What can you do to win the business from the current provider?

3. The income development piece – what do you need to do as an agent to develop the income within a dealership – on an income per retail basis.

Panelists agreed that the first step in the process is to ask questions to determine the type of program a dealer is currently in; is it a participation program or a reinsurance program? And did they form a CFC or a NCFC? With some dealers being savvier than others, agents must exercise care when seeking this information so as not embarrass an uninformed dealer. “Often, the dealer doesn’t know. There is an alphabet soup out there - CFC, NCFC, DOWC, PORC - and a lot of times, the dealer just doesn’t understand – it’s not what they do everyday. It doesn’t mean they are ignorant, they just aren’t informed.” said Randall Rabbitt, national sales director/executive vice president, United States Warranty Corp.“

So how do you obtain the information? According to Rabbitt, you get the dealer’s agreements, remittances, session statements, and offerings circular and then do a side-by-side comparison. Rabbitt explained that the process may take days to complete and is certainly not any fun, however, it may result in some surprises that you can use to your advantage. “There may be things the agent and the CFO did not know; bring these issues to light, then show the dealer the solution. No one wants to talk badly about the competition but this is the time to show the dealer the things that are wrong. Everybody wants to be politically correct but I think it’s more important to be correct.”

Often, Sharpnack explained, a company does a great job selling the concept, but doesn’t do so well explaining where the dollars go and how they get there. If you ask the dealer who named their company – the answer will usually reveal whether they are a NCFC or a CFC. If they named their own company, chances are they are a CFC, if the name was given to them, they are more likely a NCFC or they could be in a retro without even knowing it. The best answer from a dealer, however, is “I don’t know” because then you can sit down and figure it out together.

Rabbit shared a story about a competitor in Florida whose standard practice is to take all initial agreements, once signed, back to the office in order to execute them - but they consistently neglect to send a copies back to the dealer who signed. Eventually, when that dealer requests a copy of the agreement, the company is alerted to the fact that the dealer is probably talking to someone else. The result? Rabbit said at this point, the Florida company “sends in the suits!”

Bruce Osborne, national sales manager, Allstate Dealer Services, pointed out that an agent should look at the reinsurance treaty and determine how the money flows and whether or not it can be tracked. “The typical rep for the big box companies is basically doing F&I training and development and that’s it. The difference an agent can make is in coaching the dealer and looking at everything else that is involved. There is a lot you can do to add value to the F&I training development piece that the typical big box rep isn’t qualified to do, and frankly, is discouraged from doing. Tracking the money on a per contract basis and doing things on the back side can really make a difference.”

The Best Defense is a Good Offense

When the big box companies sit down with a map and make a list of dealers for their reps to call on, the best way to prevent them from ever getting traction in a store is to be there before they are and have the same discussions they are going to have. Jay Sharpnack, national sales manager, CNA National Warranty Corporation said, “They come into the store and they do a blueprint or an analysis – they are going to talk to the dealer about every department in the store and find out what your agent is not doing right. Then they will come back in with a PowerPoint and people in suits explaining how they will fix everything – and they sound pretty darn good. They are pretty convincing. The problem is, we need to be looking at all the things they are saying they can do better than we can - the numbers, the losses, the income development, the service departments and the headaches they have, the income trends, the turn over from the sales office to F&I – and we need to be out ahead of it, having those same discussions well in advance. The problem with these guys coming after your store is that they are really good - they’ve got word tracks and so much paper that it looks like they have chopped down a whole forest. And they have hired people who are really good at what they do. They are gunning for you. They sit around and talk about the fact that agents aren’t good - agents are old school. The key is getting as much information as you can in advance, so you can control your store and protect your turf.”

Beating the Competition

In addition to requesting information from the dealer, everyone agreed on the importance of an agent leaning on his or her supplier. “Your supplier will tell you what to get,” advised Pearl, “Then once you have the session reports, annual reports, tax returns, etc., you call them and say ‘Geez- now what do I do with all this information?’ because you are not an accountant or CPA. But if you don’t lean on your suppliers and the experts who work with them to help you through this, then you are going to have a lot of trouble combating a reinsurance account. The bad guys have these people on their payroll as back up. You have back up too, but you may have to ask for it.”

Rabbitt added, “You have the right to call your provider and hold them liable. If you see something wrong, you can call BS on us. We are in the age now where everything is exposed. We all know all the programs that are out there and their weaknesses and strengths.”

So what do you do if a manufacturer promises more vehicles in return for selling their products, or they say they will only let you fund their contracts? In these scenarios, the panel said it boils down to having a strong dealer, which is going to be born from having done the side-by-side comparison with him or her. You need to advise your dealer to get promises in writing – which is not likely to happen – and show them just how much money it is going to cost them to get that extra allocation.

Rabbit urged agents to stand strong, “Stand up and say ‘this is my business and I am not going to put up with it.’ There are people out there who will help you - FADAs and NADAs - and there are people to help the dealer combat this. There are reasons why we are going after these guys. This has to stop. They don’t own that dealership. The only way this is going to happen is - if collectively - strong dealers fight this! And we are strong. All of us are part of the Service Contract Industry Council. The more you convince a dealer that the manufacturer is not their friend, the better off they are going to be. And dealers know that.”

The True Cost of Doing Business

Many companies are not price-competitive in anything. It is important for agents to work with dealers to look at the overall package. In some cases, an agent might have to spell things out for the dealer so they can see where the money really goes. But in order to have all the information this involves, an agent must have earned the dealer’s trust.

Sharpnack said, “The reality is you guys are as capable from a F&I training and development standpoint [as the big box providers]… Why wouldn’t the dealer want to do business with you, when you are more competitive from an administrative perspective and ceding fee standpoint, and you have the same kind of training and development that the big box companies do!”

When it comes to ceding fees, Rabbit used the analogy of a bank telling a customer they were going to put the customer’s own money in an account for them – and that the bank would charge them for doing this. No one would put up with this, yet reinsurance programs with the same basic scenario are rampant.

Another company collects $60 for what they refer to as “promotional budget.” Sharpnack described the process. “They use this money, collected from all of their clients, to buy up other dealers. If by the end of the year, they haven’t spent it all, their sales people run around throwing money at certain dealers before year-end. The irony for the dealer is that their money is being used to buy other dealers. Talk to a dealer who isn’t being offered that!”

In some cases, Rabbitt said even reps are happily ignorant. “There are hidden fees that they don’t even know about. One had a $5500 administrative fee and yet claimed to have no hidden fees.”

Pearl closed the session with a review, reiterating the importance of finding out information about the competitor by obtaining session reports, annual reports, tax returns, etc. from the dealer. Regarding the idiosyncrasies of competitors’ programs, Pearl advised agents to be on the lookout for loss adjustment fees where they have a low admin fee, or low ceding fees when they are charging on every single claim they adjudicate.

Regarding the income development piece, Pearl said, “First, go in and show the dealer blueprints for how you are going to earn them money. But don’t be afraid to go in and ask that dealer, “How often does your current provider come in and review your loss ratios with you?” Its important when you are servicing this account on a reinsurance side that you are controlling the losses.

At the end of the day, the consensus from the panel was the strong recommendation for agents to take advantage of the resources that are available and call their providers to stay apprised of any challenges that are trending across the country. This is the sort of thing providers are aware of and can share with their agents. If an agent is taking advantage of the relationship they have with a provider, then the provider can - and should be – a great resource to them. Rabbit concluded, “The enemy of my enemy is my friend. Whatever we can do collectively to make ourselves stronger, will make those guys weaker. We aren’t smarter or better looking, but the advantage we do have is we are national and we see a bigger picture. We see things occurring across the country and can share them with you. Call us anytime. We are always available to help.”