25 Oct Reinsurance Monies VS Retros
Hi, folks, I’m Garen, and we are back with the third installment of What The Heck Is Reinsurance, Anyway?
This episode is about money. Reinsurance monies. Here’s a quick teaser: if you are currently getting a retro instead of reinsuring, do me a favor and dig out your last retro check stub. Take the check amount and multiply by two, and that’s a very safe bet as to how much you COULD have made during that particular time frame.
First, though: a quick recap on the whole reinsurance process. When a dealer sells a contract that is insured by an A rated insurance company, it creates an obligation on the dealer’s part to fix a Customer’s claim. If the dealer goes bankrupt–and is unable to fix the claim–then the A rated insurance company makes the customer whole. This is part 1 of a two-step process. You’ll notice reinsurance hasn’t even been introduced to the equation yet–that’s Step 2.
Since the dealer has an obligation to perform for the customer, they are able to independently procure an insurance policy to cover this obligation. The dealer can then place their contract premium into an investment account owned 100% by a reinsurance company that is in turn owned only by the dealer. This is step 2 of 2: the actual reinsurance transaction. A good reinsurance provider makes all of this a very easy process.
So where is this reinsurance company’s investment account? Right here in the good ol’ USA. What kind of investments can be used? All kinds, as long as wisdom prevails. Is the reinsurance capital accessible to the dealer? You bet–earned premium is accessible through qualified dividends and/or shareholder loans that the reinsurance administrator can easily draw up. Unearned premium is also accessible via loans, as long as wisdom prevails. Does the reinsurance investment account have a financial advisor to provide guidance? Well, it definitely should. And that investment account should be either complimentary or very inexpensive.
How can you tell how much money is in your reinsurance account? That’s easy…just log in and see the bank statement online for yourself. What’s even better is when your reinsurance cession statements routinely match up with the actual money in your account. Now THAT’s the sign of a quality reinsurance program!
Way too many reinsurance providers out there are getting away with showing off paper “wealth” to dealers every quarter…but the minute that dealer tries to access their reinsurance capital, there’s a whole lotta disappointment and anger.
More control on your part as the dealer means more money in your pocket. A LOT more. Take that retro check you’ve been waiting for since January 1st and shove it. Just a reminder: on average, that taxable retro check is HALF of what could be sitting in your own reinsurance investment account, tax-advantaged.
Stop falling behind your reinsuring competitors. Start paying attention to where the money’s at in the auto dealer world. Capturing underwriting through reinsurance is the best possible way to change your legacy.