Five Mistakes Dealers Make with Automotive Reinsurance in 2025


In 2025, more dealerships are looking to maximize profitability and control their back-end income streams. Partnering with Reinsurance Companies has become a powerful way to do just that. However, despite the potential, many dealers are still making critical mistakes that limit their long-term gains and even expose them to financial risk. Understanding these missteps is key to building a successful reinsurance strategy.

1. Choosing the Wrong Reinsurance Structure

Not all reinsurance models are created equal. Whether it’s a Controlled Foreign Corporation (CFC), Non-Controlled Foreign Corporation (NCFC), or a Dealer-Owned Warranty Company (DOWC), selecting the wrong structure can lead to tax complications, regulatory issues, or restricted access to capital. Many dealers jump into the first model offered without understanding how each option aligns with their long-term business goals.

2. Failing to Understand Their Reinsurance Statements

Reinsurance is not “set and forget.” Too often, dealers don’t take the time to read or fully understand their monthly or quarterly statements. These reports reveal key information about reserves, investment earnings, and loss ratios. A lack of visibility or misinterpretation can result in poor decision-making and missed financial opportunities.

3. Relying on Passive Partners

Some dealers rely heavily on reinsurance administrators or third-party providers to make decisions on their behalf. While delegation is essential, complete passivity can be dangerous. Dealers must stay actively involved, ask questions, and understand how their reinsurance partner is managing claims, reserves, and distributions.

4. Not Planning for Long-Term Liquidity

A common mistake is treating reinsurance income like a short-term profit center. Dealers who don’t plan for long-term liquidity may struggle to access funds when needed—especially during ownership transitions, acquisitions, or economic downturns. Strategic distribution planning is essential to maintain healthy cash flow and support business growth.

5. Overlooking the Role of F&I Products in Reinsurance

Many dealers underestimate how F&I Products impact their reinsurance program. Products like service contracts, GAP insurance, and tire-and-wheel protection drive the profitability of the reinsurance entity. If the product mix is unbalanced or underperforming, it can affect claims ratios and reduce overall returns. Reinsurance works best when paired with a well-structured, performance-driven F&I product lineup.

By avoiding these five mistakes, dealerships can build more sustainable, profitable relationships with Reinsurance Companies—and ensure that their F&I Products are generating maximum value.

Location: United States

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