Reinsurance: Which Products to Reinsure
In our continuing series on Reinsurance, this month we are breaking down which products are ideal candidates for Reinsurance.
Vehicle Service Contracts:
Vehicle Service Contracts are ideal products to be reinsured. The variety of coverage rates, average loss ratios and substantial premiums make them ideal for dealers to Reinsure.
3/3 Limited warranties are ideal for reinsurance because the premium is earned in 90 days, that paired with low losses allow you to take surplus on them every month after the initial 90 days expires.
Paint & Fabric:
Allstate Paint & Fabric is a high quality 3M product that is Automotive Assurance Group’s exclusive paint and fabric product. While earned premium can take from one to five years to fully vest, Allstate’s Paint & Fabric policies have proven out to have historically low loss rates due to the high quality and success of the product.
Generally another great product for reinsurance due to the law of large numbers. Because this is placed on all vehicles sold, you end up with no adverse selection and the premium is proven to be adequate for the risk. It is a long term proposition as the standard amortization of a Lifetime product is earned in 12 years.
Gap has long been considered a risky product for reinsurance due to the severity of the claim. High LTVs on loans made by lenders and used car values that can be affected by lease returns cyclically, can wreak havoc on a Gap portfolio. The best window to have reinsured Gap was from 2007 to 2013, when we saw LTV amounts reduced by lenders and Used Values at their peak. Today Gap insurers are raising rates on Gap for the first time in over 7 years, as they are now beginning to see the Severity climbing once again. With proper set up Gap can still be a decent product to reinsure.
Tire & Wheel:
Tire and wheel policies are generally not the best to reinsure due to high losses and low premiums. For dealers that do want to reinsure tire and wheel we recommend selling a combination product like Allstate’s Complete Protection.
Allstate Complete Protection:
Allstate Complete is a great way to reinsure Tire & Wheel, as it includes tire and wheel coverage, plus several other risks. Items such as Key replacement, Windshield, Dent & Ding, and Road Side Coverage, all increase premiums over double. Because of the higher premium and the lower losses on the other Perils, the impacts of the losses are reduced substantially.
Learn more about Allstate Complete Protection by clicking here: Allstate Complete Protection