The Fundamentals of Dealer Participation From Reinsurance to Dealer Obligor

Today, profit participation is a critical profit center and major source of wealth creation at the dealership. Those who fail to regularly revisit their strategy and assess their current needs may risk leaving a significant amount of money on the table. By regularly evaluating your participation performance, you can ensure you’re using the right model for your strategy — and that you’re getting the greatest possible returns. Having access to participation experts with extensive knowledge of the benefits and limitations of all available models can go a long way in making sure you’re making the most of your revenue.

What Are Profit Participation Models?

Profit participation, including reinsurance, allows you to share in the underwriting profit and potential investment income on the F&I products you sell. When a protection product is sold, part of that gross is held in reserve by the F&I product provider to pay claims. But that money doesn’t just sit idle — it’s used to generate income through interest. There are a range of participation vehicles that allow you, the dealer, to participate in that income. The type and level of participation depend on your business needs, strategy, and tolerance for risk. You can build a participation position for vehicle service contracts, limited warranties, GAP insurance, tire and wheel protection, appearance protection, and other F&I products that make sense for your market and current business needs. 

Long-Term Investment and Wealth Building 

Traditional reinsurance structures allow you to develop long-term business strategies that offer either the highest potential return (NCFC, or non-controlled foreign corporation) or more control over your investment strategy (CFC, or controlled foreign corporation, or Small Property Casualty Company). Since it involves multiple owners, the NCFC model offers risk sharing and risk distribution, and it features a large asset base which yields larger investment options across all product lines. The CFC and Small Property Casualty models have similar capabilities. They also offer more control in investment strategy. However, they have more restrictions and potential compliance risk — so knowing your provider experience is crucial here.

Any of these models should be viewed as a long-term commitment that pays off over time. Remember how dismal auto sales were during the Great Recession? Some dealerships tried to jump into reinsurance so they could make up for losses — but they were too late! However, those dealerships that had previously established their reinsurance positions and built them over time were far more protected.

Flexibility and Investment Control 

High-growth, high-volume dealers may want a more fluid strategy that offers more cash flow and a longer-term investment. The dealer-owned obligor company (DOOC) accomplishes both, but not without risk. This risk can be heightened in an unpredictable economy like today’s, where high interest rates can affect sales volume and slow F&I attachment. However, a dealer-owned reinsurance company gives you a much higher level of control over your investment strategy and can allow customization of protection product terms. There may also be options for potential tax deferrals as well as free cash availability above anticipated claims. 

Optimizing Cash Flow

While profitability is the primary success metric for dealer entrepreneurs, cash flow can be equally important. Dealers need cash flow to cover operations and overhead. For example,  if you’ve recently expanded, updated your showroom, or are planning an acquisition, planning for cash flow is especially critical. Leveraging a dealer obligor program designed for cash flow can help you drive immediate revenue since you have 100% access to reserves. A revenue analysis based on your current F&I production can help forecast your cash potential. It’s important to remember that, while you may access all of the reserves, you must also plan carefully and be prepared to pay claims, refunds, and taxes. 

What Is the Right Participation Model for You? 

Participation positions are designed to generate cash flow or build wealth through long-term investments. Choosing the right one requires nuanced decision-making that takes into consideration a range of complex factors. For instance, do you need cash flow to support acquisitions or store upgrades? Do you need to retain key employees? Are you building for retirement or estate planning? Are you more or less risk averse? Do you want to reinsure every protection product you sell? Understanding your best options and ownership level requires a clear understanding of your goals, so it’s essential to ask five basic questions that may impact those goals when evaluating a participation structure: 

  1. What are your short- and long-term needs for cash flow?
  2. How much control of the claims process do you require?
  3. What is your comfort level with tax benefits and consequences?
  4. What is your preference for offshore or domestic investment?
  5. What is your tolerance for risk?

When considering participation positions, it’s critical to take a holistic view of the unique benefits each structure offers along with who’s providing it. Your F&I provider should be transparent and should present all available models, outlining how each can perform related to your unique needs. A provider that only promotes or has experience with some participation options may not be knowledgeable or even offer others, which could limit your potential. Assurant offers all participation models and provides every customer with comprehensive education about how each one works and how they can help you make the most of your money.


Is your F&I provider transparent when looking at the potential of each participation model?


How to Think About Risk

Participation models are nuanced and complex, even before considering external factors like regulations and the economy. A proper risk analysis should be comprehensive and compare not only each model, but also individual products and providers. This is key to ensuring you choose a participation model that matches your goals and sales volume.

When it comes to participation model risk, claim payments are top of mind. It goes without saying that those who fail to pay claims risk their customer retention. To avoid this problem, a comprehensive plan should be in place to drive customer satisfaction and service traffic — along with more revenue.


As needs and goals change, Assurant Dealer Services can help dealers adjust their participation position without any switching costs or loss of productivity.


Choose an Expert Partner You Can Trust

Do your due diligence. Be sure your provider is financially stable, has an established track record of income development across participation models, is upfront about fees, and can help you adjust your position as your needs change without switching costs or loss of productivity. Also, ensure you understand the restricted nature of investment guidelines of some participation models. Your provider should give you the flexibility to work with a portfolio manager of your choice so you’re not leaving potential profit behind. Performance data such as loss ratios and average earnings per contract after claims should always be part of the conversation.

Having an experienced advisor who understands the unique potential, risks, and benefits of each model and doesn’t promote one type of participation over another is essential. An ethical partner should be flexible and transparent, give you consistent performance reports, and, above all, recommend the model that best supports your short- and long-term strategies. And, if your needs and goals require a change in position, they should help you adjust your position without any switching costs or loss of productivity. Assurant is uniquely positioned to do this. We are experts in — and offer — all available profit participation models, so we don’t have reason to play favorites.

With the right partner and the right model, profit participation should help grow a more profitable future for you and your dealership. Are you getting the most from your participation position? Contact the profit participation experts at Assurant Dealer Services for a free participation analysis.