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Strategies to Get the Results You Want in F&I Underwriting

By Chris Costello  | Sep 17, 2019

“It’s not what you make that counts, it’s what you keep.” It’s a common saying, but it certainly applies to dealers offering F&I products.

It all boils down to this: There are a million ways to get results, but getting the results you want takes a lot more thought and consideration.

A well-crafted pay plan can produce outstanding results for both the dealer and F&I Manager. Some dealers see great returns by offering F&I products with a large front-end commission. For others, taking less up front but participating in the underwriting results is the better choice.

In a participating structure, the majority of a dealer’s earnings come from the underwriting results, so this should be a deciding factor when considering what works best for you.

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There are two equally important components that can affect underwriting results:


Investment income on the reserves is an important part of dealer earnings, but there are often limitations on how the reserves can be invested that cap the amount a dealer will make.

It goes without saying that having adequate reserves is critical. If you are participating in the underwriting results, you want to be protected against excess losses. The key is determining what loss ratio provides the greatest return for the dealer. Higher reserves will produce additional underwriting results. However, too high of reserves could result in lower sales or in products not being able to be financed (known as lenders’ caps), which will also reduce sales. Too low of a loss ratio could produce substandard underwriting results.

Claims Adjudication

When an administrator pays claims for a participating dealer, they are spending the dealer’s money. Efficient adjudication can produce considerable results for the dealers.

Reserves for a typical service contract may represent 40% of the contract’s retail price. Multiplied by the number of contracts sold, you’re now talking about a substantial amount of money to properly manage. A 2%, 4% or 5% difference in claims adjudication makes a significant difference in the underwriting results.

Of course, not paying claims has an impact to the dealer as well. CSI scores, regulatory action and/or legal action could have a substantial impact on reserves if valid claims are not paid.

So now what?

With so many factors to consider, it is critical to have a reliable F&I administrator. Look for a third-party F&I administrator with experience and concern about all aspects of your business, especially if you are a participating dealer. Having proven actuary services and experienced claims adjudicators with the right balance of reserves and claim payments will produce the best results every time.

If you are looking for an F&I provider or reviewing your current provider, focus on their pricing strategy and adjudication capabilities. The administration fee is a factor many dealers look at, but in the grand scheme, it equates to only a fraction of the reserve amount. In some instances, the difference between one company’s administration fee and another may be less than a couple of dollars.

A provider’s pricing strategy and adjudication capabilities will produce a much greater impact than the difference in administration fee. In these situations, it truly is not what you make, it’s how much of the underwriting results you keep.

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