#19 - Tim Byrd - Dealer Reinsurance

Hello and welcome to this episode of the Independent Dealer Podcast. Today we have a really special treat. We have Tim Byrd here, who is an expert, the leading expert, I dare say, in reinsurance companies. For your buy here, pay here, your retail location, any car sales you're doing. This episode is just chock full of information, right, Luke?

Yes, sir. Baby. We go through so many things. He's going to explain to us what the reinsurance company is. He's going to tell us the advantages, the disadvantages, the types, the pros and the cons, and just tell us what the cost is. This is something everybody's got to listen to if you're interested in reinsurance.

Tim, say hi.

Hi. This is Tim Byrd.

All right, here we go. Welcome to the Independent Dealer podcast, the podcast for auto dealers to learn and grow together. Here are your hosts, Luke Godwin and Jeff Watson.

All right, Tim, so the big question that we're always getting is what is reinsurance? So there's a lot of people out there don't know. There's a lot of people who have misinformation. But what I'd like for you to do is explain it to Jeff and I, like we don't know anything about it.

All right, so reinsurance is an opportunity for car dealers, a unique opportunity, actually, that allows them to own their own insurance company and that insurance company to provide the products that they may be not able to offer otherwise, or depending if they're buy here, pay here, or retail dealers, or they're buying it from somebody else and those other companies are reaping the underwriting profits.

So, Tim, why would it be in advantageous for me as an independent dealer to sell my own products other than selling one from a, you know, from any, any warranty company off the street? What's the advantages of that for me?

Well, it's kind of like the reason that you're a car dealer and not working for the local Ford store. Okay. If you work there at the Ford store, then you are a salesperson. You'll get a commission for the sale of the vehicle, but the guy that owns the place is the guy really making the money. And it's the same thing here in that if you. And let's just take a typical example. If you bought a service contract to sell to your customer and you paid just for round figures, you paid $1,000 for it, and you sold it to your customer for 1499, you made a $499 profit. You sent that $1,000 off to the warranty company and they Take a little bit out for overhead and the rest they put in reserve. Now what happens, and this is typical of all companies, including us, is that that reserve is set aside to pay claims. So just as an example, let's say it was a two year contract, you set it aside, and that money is designated to pay the claims that come up. So if you did 10 of those in a month, you've sent off $10,000. And of course, if you did 10 each month for a year, that's $120,000. So. So in looking at that over that period of time, whatever is not used to pay claims becomes the underwriting profit of the warranty company. So in this case, if it's a third party warranty company and you had, even if you spent 50% of the money paying claims and you're down to $60,000, that becomes that third party warranty company's underwriting profit. When you set up a reinsurance company, that $60,000 becomes your underwriting profit.

So as it, as a naive person here, I'm gonna go, oh my gosh though, what type of liability does this open me up to? Can I lose money? You know what, what are the downfalls? What are the pitfalls that we may run into if we, if we did this?

Well, the thing is, is there is just like anything, any kind of business, there are some misinformation out there. There are two different kinds of reinsurance companies. There are admin obligor, which is administrator obligor reinsurance companies, and there are dealer obligor reinsurance companies. And the big difference is that with the admin obligor contract or agreement, that what you have is the contract or the warranty or whatever product it happens to be is between the insurance company that stands in front of your reinsurance company and, and the customer. So it's between the insurance company and the customer, not the dealer and the customer. Whereas with dealer obligor, the contract is between the dealer and the customer. Now that may sound better, except if you think about it, Uncle Sam is an advocate for the consumer. They want to make sure that the consumer is taken care of. All right? So with an admin Obligor program, the money is set aside in a trust, which is in the dealer's company's trust, okay? Now that's the, the reinsurance company that they set up, that money is in that trust on behalf of that customer, and at that point is considered premium. And Uncle Sam says that if you put less than $2.3 million in premium A year, away, you don't pay tax on anything except maybe underwriting profit. I mean, excuse me, like capital gains or interest income, okay? Not the premium itself as it earns out. And the way it earns out is if a contract for 24 months, it's going to earn 1 24th per month for 24 months until it has expired. And what an Admin Obligor program guarantees is that there will always be money there to pay the customer's claim. Okay? So unlike a Dealer Obligor program where that money is in an account right beside the dealer's account that he has for his general operations and he has access to that money, but there's no guarantee to that. And so therefore they don't get. The Dealer Obligor program does not get the same tax benefits as an admin Obligor program. And I mean, guys, look, I've been doing this for 30 years and we have all pulled up to car dealerships that had chains on the doors and the inventory was gone because people, for whatever reason, it didn't work out and they, they hit the road. Well, if that happens under an Admin Obligor program, it doesn't matter. The customer will be taken care of, okay? So no matter what happens to the dealer, the Admin Obligor program is set up that the customer will be taken care of. Under a Dealer Obligor program, you may have went out of business, but your contracts being enforced are not the problem of the dealer. Dealer Obligor administrator, they're your problem. And so even if it's three years down the road, you're off doing some other thing, you've closed it, you've retired. Whatever reason, when that customer calls up and has a claim, you're required to take care of that claim whether there's reserves left there or not. So the big difference is, as an admin obligor, you are only liable for the amount of money you have put in reserve. Then the insurance company has to take over with a Dealer Obligor, as they used to say with Lloyd's of London, you are going to be liable down to your cufflinks.

So that's. That's interesting. I, you know, I'd always heard those, those terms thrown around and I kind of understood it. But that explanation was, was great. Thank you, Tim. And you, you write Admin Obligor correct Only.

And you know what I mean. I could do anything I want to. I've owned this company for 25 years and we use different administrators for different things. But I would never Sign a dealer up under a dealer obligor program. It's just too risky.

So on that point. So there is a big difference in my opinion, from the way independent dealer who's mostly retail handles the warranty company and a buy here pay here dealer. Can you go through the kind of difference and the tax advantages and such when it comes to those type of dealers?

Well, a retail dealer is going to usually get outside financing, for instance, or they're doing cash deals or whatever, but they're not the bank. And so when they sell a service contract, they're getting funded the full amount of the service contract, which they would turn around and then remit to the warranty company with Buy Here Pay here. That is very difficult. I mean, if you had a $1,000 warranty, for instance, or service contract, and I'm throwing warranty around there. There is a difference between warranty and service contracts, but for the sake of this conversation, we're just kind of lumping them in there. But if you paid $1,000 for a service contract as a buy here pay here dealer, and you sold 10 of them, you've taken $10,000 out of pool. Well, that can be a problem with Buy here pay here because of course, we all know that cash flow is king in Buy here pay here. So you don't want to do that. So what we do is, which is very unique, is that we will take the term of the warranty, divide the premium by that term, so that as you're collecting premium from the customer each month, you're collecting payments, that you're collecting that premium and passing it on to your reinsurance company. So that opens up a big opportunity for Buy here pay here that they don't have otherwise, because otherwise it is too costly to their lending pool to be able to buy service contracts up front. Does that make sense on that?

Yeah, I think there's a couple other advantages to Buy here Pay here when it comes to tax advantages. It really. It's a line item expense that, that you can take each month, which is good. And let's revisit one other thing just so everybody that's listening will know the difference in the warranty. And a service contract is pretty simple. It's a warranty if it's given to the customer. Correct, Tim?

Right. A warranty, and it's important to note a warranty is regulated by the federal government under Magnuson Moss. A service contract is regulated by the state. So there's two different things right there. A warranty is something that you give the customer as part of the price of the car and you're not charging an extra fee. Now you can reserve for a warranty. It just makes sense that you do because you have to make sure that you have money there to pay claims. But a service contract is something that's bought above and beyond and has to be a line item on their retail installment contract. Now that's not to say that you couldn't sell it to them outside the retail installment contract, but what I'm saying is that if you are going to finance it within the deal, that it would need to be a separate line item on your retail installment contract.

Yeah, and we do both. We give a warranty when a customer buys and then we also offer the ability for that customer to up the warranty from a 12 month to a 36, 24, anywhere in between. Also, with the reinsurance coming the way ours has done within our buy here pay here, we also offer Gap. You know, that's not probably something that a retail company would want to do. Gaps getting hammered, I think in the economy right now. But also you sell collision damage waiver from that from a reinsurance company as well. Can you go over that, Tim?

Yeah. So, you know, the problems that are inherent in the buy here pay here business is that that cars break and customers don't have the money to fix them, number one. And number two, that the insurance is lapsed quite frequently. And it's because the cost of insurance is outrageous to a lot of people. Sometimes their insurance payment is more than their car insurance, I mean, more than their car payment is, which is crazy. But that's the nature of that. And many times we lose deals over it or customers for the most part will sign up for car insurance for 90 days and then they're done. So the customer dealer is left in a lurch where they are left out there to, you know, the guy may be paying them good, but he's not paying his insurance, which puts the collateral at risk. If they total that car, it's going to be the dealer that eats that. Okay, so why not have a system in place that takes care of both of those problems, the collateral protection and the mechanical breakdown. And by doing that, and we have several things. You mentioned Gap. Gap is a deficiency balance waiver. In other words, if the insurance company pays, you know, five grand and but they owe seven grand, there's a deficiency balance. That's where Gap comes in. Whereas debt cancellation coverage is a waiver in most states like Gap is. However, it's an agreement between you and the customer that they have a total loss for the fee they're paying you each month, then you would forgive their debt. Now cpi, which is collateral protection insurance is actual insurance policy, but it is a force placed insurance policy. And any one of those products can work well for any particular dealer. Now CPI would cover and when I say it is the lender's insurance, so it would be you, the lender, this is your insurance that you're placing on this car and then you're requiring your customer to pay for it. Now that particular kind of insurance is, I mean it wouldn't matter who the lender was if you were whether it was a house or a car whatever whatever. With CPI, if you let your insurance lapse, you can bet you're going to see CPI show up. But in this case it is still less expensive than the customer's regular car insurance. So those things by combining some kind of collateral protection along with mechanical breakdown. What we have seen in the industry that about 2/3 of all repossessions are because of either mechanical breakdown or lapsed insurance. And the other third of course is life events that we can't do much about. However, if we can take care of 2/3 because it's important to realize and buy here, pay here, that we are in the payment producing business. In other words, it's not so much the car business. Now we are providing a means of transportation for people who are, as we call the unbanked. Okay, we give them an opportunity to own a car, make payments and those things. But they don't have a lot of wiggle room. And it's like if you and I have a problem with our car, it's an inconvenience. But when they have a problem with their car, it can be a tragedy. It can mean them not getting to work, not getting to school or the grocery store or church or whatever. And so by having a system in place where everyone is paying in, you're building a bridge over pitfalls that are inherent in our business. So it just makes sense, as some of our dealers say, it's a no brainer to be able to take small bits of premium from each one of these customers and put it aside so that if something happens to any one of them, we can get them back on the road in their car and making payments quickly.

Jeff, I feel like I've taken over here. What do you got?

I have so many questions because I don't do this and, and so I just think, and Tim, maybe you can help me out here. Are these Two separate programs. So say someone's a buy here, pay here and or a retail dealer, do they need to have two separate companies where they're treating one reinsurance company different if they sell a product to a buy here, pay here customer? Whereas maybe they are doing some outside financing because those aren't going to be ones where they haven't earned a premium that they pay on. They're getting one check from the credit union. But they don't want to put debt cancellation on that car. Right. I mean, they don't want to have their debt cancellation product. They want to sell an outside gap product. But maybe they do want to sell their service contract.

Absolutely, yes. We have many dealers that are in that we call them hybrids. They do a little bit of both. And so simply what we do now, you would have one reinsurance company and you don't. There's no need for two. You have one reinsurance company. It's just that within that company we will keep separate the different products that you have. And so, and as Luke can tell you as you, when you log into our system, there are coded numbers that are set up for whatever you're doing. So let's say that it was just service contracts, but you were selling service contracts to buy here, pay here dealership and you were selling service contracts to retail customers. Well, we set it up in the system so that what you can go in and when you log in that product for that customer, you're going to tell us how to bill you. So in other words, if it's a retail deal, we're going to bill you the full amount so that you, because you got funded the full amount. But if it's buy here, pay here, then we will bill you in payments.

So help me distinguish there. When I'm regardless of where I'm getting funded from, the service contract can work on all those cars. Right? But obviously a debt cancellation. I don't want to put debt cancellation on a $30,000.

No.

And you don't want to deal, right?

Absolutely not. And remember, when you're doing outside financing, you are not the lender. Okay? So remember the debt cancellation products or collateral protection products or to protect the lender. Now I can tell you that just as an aside, if your customer was financed with an outside bank and they, they dropped their insurance, they're going to certainly see cpi. But it's not yours.

It's not. Okay. Okay. Yeah, yeah. So I'm grasping this. My debt cancellation and my collateral protection insurance is a buy here, pay here product to protect the lender. That's a lender product, so to speak.

Yep.

Correct.

What other products could I potentially sell at my dealership to fund this reinsurance company? Because like Luke said, I mean these are top line expenses, they come out pre taxed. So I mean, ideally if you could sell. If all I'm selling is a service contract to that outside finance deal, I'm not really maximizing my potential there. Right. I mean, is there any other products that you would see us running through this reinsurance company?

Absolutely. In fact, what we do is we, you know, we're not just experts in the reinsurance business, we're experts in the car business. So what we want to do is analyze your store and what's best for you. Okay. So because everybody's different. Even if you, you were buy here, pay here, the realm of buy here, pay here dealers, the scope of that is, you know, from $2,500 ACV to $20,000 ACV, there's a big difference there and also the amount of volume and that sort. But as a retail dealer, there are several things that you can do. One is to differentiate yourself from your competition. You can set up a certified program to certify your cars and put up say a three month warranty on those cars. And that way you are. And I want you to understand the warranty itself is not the certification you're certifying that the car has, has gone through a 100 point check list. And we've done your due diligence for you. But just in case we missed anything, we're going to warranty this car for three months and 3,000 miles. Now I want to take that and then of course you can upsell to a service contract. But I want to lay out something that we have done with several dealers across the country that has been just huge and both buy here, pay here and retail. But I want to explain the retail side of this real quick. The retail side of this is that we to differentiate in this market. And it's important when your salespeople go out there. You know, we've been told since we were knee high to a grasshopper that you sell yourself, the house and the product, right. So when you go out there to sell the product, you need to have something to say because something other than my car is nicer than the guy down the street and my price is better because you know, there can only be one cheapest guy. Right. And that's usually a losing game to be in that game. So what we have done for them is we've created VIP programs or Advantage programs. And those Advantage programs are such that, so you put, you certify your car and then we have a little product that we call Multi Shield. And Multi Shield can be a lot of different things, but it's usually about three different products that you add to the car. And let's say it was windshield coverage, door ding protection and 24 hour roadside assistance. And then you take advantage of some or take credit for some of the things you're already doing. You say, we're going to give you a free vehicle history report and $500 off your next car and a free oil change or whatever you want to do. What you do is you have a giveaway and it's an expense to the dealership. But remember all of the premium that you're paying in for this and it's not a great deal, it's not a bank breaker, but you take that premium and it goes in your reinsurance company. So yes, it's an expense to the store, but you're passing it from one entity to the other and you're creating an atmosphere, marketing atmosphere, so that your customers see value. Because remember, value is a customer can justify the price if they can justify the value. So but when they go to F and I, when they get to F and I, they, the F and I guy goes, you know, I'm glad you came in today and I know that you, you took advantage of our VIP program and I know you're excited about that. Well, guess what, we can extend that up to three years and 36,000 miles and we can do that for you today. And it's going to be X number of dollars more a month. And so F and I upsells them from this giveaway up to a three year program all again, all of that money goes into your reinsurance company. So it gives you an opportunity to have. And plus if you upsell them, you're not paying for the, for the giveaway because you upsold them. So the customer is paying literally for everything, right? So there's no cost of sale there. You're still, you're profiting from that and you're able to profit on that. On the buy here, pay here side we do something very similar, but we use service contract, debt cancellation coverage, same thing, free vehicle history report, $500 off your next car, free oil change. And the thing that we like about the oil change part of it is if they're coming in to get a free oil change and this is hugely important, buy here, pay here, that you're getting an opportunity to eyeball the car when they come in and make sure that they're taking care of it and making sure, for goodness sakes, that the oil is getting changed. And customers love that. The advantage program usually cost them less than it would for them to have the full coverage insurance that you're requiring them pay somebody else.

I've been, I've been really wanting to do the maintenance program within, within our reinsurance and your son Taylor's been after me to get that done and I keep, keep talking about it, but I really need to pull the trigger. I think that's a, that's a huge advantage. I think for Buy Here Pay Here customer if, you know, anytime you can take something off the board that they don't have to come out of pocket oil change, you know, breaks or things like this, I really think it helps our customer succeed.

Absolutely. And the thing is, Luke, that a reinsurance company just helps you be a better dealer. It does, because you can provide these things without killing yourself. Okay? You can provide these things, you can take care of problems that are inherent in your business, but you're also able to take care of things and not relying on, on the good graces of some third party company to come into the rescue if you're in a gray area claim.

I totally agree with that, Tim. So these are all the great things. You know, my question is, is this for everybody? You know, what makes this for one dealer not for another dealer? Are there certain dealers that shouldn't be involved in this?

Well, look, like anything else, you got to work it, okay? I mean, you can't just get a reinsurance company and think it's going to just take care of itself. I mean, you know, it doesn't matter what you do, whether you have a service department or sales or a finance company or rfc, you've got to work the deal. And that's what as salespeople, then we're all salespeople. That's what we are tasked to do, is to work it. If you're not willing to do that, then don't do it. I know that if there are shady dealers out there, then we don't want to do business with them. But there are shady providers out there that can take care of you. The thing is that those that don't want those that. I would say the number one reason that dealers don't get involved is they think they're too small. So I want to point this out. If you're doing eight or ten cars a month and you really, really worked the deal. You could probably still make some money off this, if nothing else. If you did a three month warranty and you sell some service contracts. Okay, but the numbers have to make sense. In other words, I wouldn't do collateral protection on a guy who's a buy here, pay here dealer and he does 10 cars a month and his ACV is 15 grand. I just, you can't reserve enough money to cover all of that, so. Or if all you're selling is Lamborghinis. Now one, one thing is for sure, we can, when it comes to the service contract side of things, we can reserve to, to offset some of those things. You just reserve more because the risk is greater. But Luke, the number one reason, as I said, that people don't do this is they think they're too small. And I want to point out we have a dealer in, in Texas and he does a three month warranty and he does debt cancellation code. Luke, in three years this deal has, this guy has worked the deal and in three years he has reserved $1.3 million. Okay? Now if that's not a testament of a no brainer, then I don't know what is. And there is nothing, there is nothing that you can do in the car business that has a better return on investment than a reinsurance company.

And also, just another thing, if he's reserved that kind of money, the amount of money he saved in income taxes or deferred and income taxes is huge as well. And people in the buy here, pay here business get in trouble a lot of times with the tax side of it. So it's really, it helps in both ways. It reserves wealth and it also, it preserves wealth and reserves wealth and also it allows you to keep a lot of that income tax money that you would be paying out in your business.

Right?

Because you have to understand that tax evasion is illegal, but tax avoidance is absolutely not okay. I mean, that's why we have accountants to make sure that we're doing the right thing and putting the right thing away. So it's important to understand that most dealers out there are either an S corp or an llc, which means they're a flow through entity. And so if you make a dollar, whatever, you don't expense out of that dollar. As the stockholder of that S corp, at the end of the day, at the end of the year, you're going to have to pay taxes on whatever you don't expense out of there. Well, if you can expense it out of your dealership or rfc and move it to your reinsurance company where it's considered premium, then of course you're not going to be paying taxes on that. As long as it's within the insurance company or within the trust, you won't be paying taxes unless it is, say, capital gains or something like that.

And maybe while we're on that topic, could you tell me or help me the end game of that? Say you funded it, you funded your reinsurance company and you have that there. You can, from what I understand, you can borrow it back to yourself tax free. Or if you said you want to take it out as capital gains at some point, you could do that as well. Is that kind of the.

Right? There are actually two different ways to go about this. One is if you borrow, any entity that you own can borrow money from your reinsurance company. We have dealers that have family trust that borrow or have a dealer has a carpet store and his carpet store borrows money from his reinsurance company. My point is that borrowing money does not create a taxable event and it gives you an opportunity to use the funds that you have and pay back the reinsurance company the interest that's incurred. And on the other hand, I'm sorry.

It'S another way to make profit. You can charge, you know, 5% instead of paying the bank profit. You can pay yourself profit.

Well, yeah, because you're going to be paying somebody interest. I mean, I just talked to a d. One of our dealers the other day. I happened to run into him at Lowe's and he had borrowed some money to buy a house. He's only paying interest on the deal, but he's paying, I think, I don't know, $400 a month in interest. And I'm like, why don't you just take the money out of your reinsurance company and at least that $400 you paying to your reinsurance company. So on the other hand, your question was about taking a dividend distribution is what it is. So when you take a dividend distribution, you're taking that money in as it wouldn't be any different than if you took a dividend distribution because you had stock in South Carolina Power and Light, okay. And they issued a dividend, okay? So there's no difference there. But the taxes on a dividend are less than your regular federal income tax.

There's about a. So I think that's pretty close to long term capital gains, which is, you know, sits in the 15 to 18% range and on your income. So, Jeff, depending on your tax bracket, probably most of us are sitting in the 30 to 35, 37 tax bracket. So you're saving almost 20% on your money by taking it through capital gains that way.

Okay. And I don't want to wrap this back around to where we were, Tim, but here's a question that I have from a logistical standpoint that I feel like we didn't touch on and I don't understand, but. So say I've contracted these cars and these customers and I send them out the door with a piece of paper that says you have a 12 month, 12,000 mile warranty. What are they, are they calling me? Are they calling your phone number? Who's taking cares? And when it comes in for repair, am I paying out of my reinsurance company to the ford store at $150 an hour to get this thing fixed? Can they go anywhere? Do they have to come to me to get the repair? And then do I bill my reinsurance company to get paid back for all the shop work that I did? Like who's, who's dealing with the headaches?

So that's a good question. The thing is, is that when, when you set up a reinsurance company, it's really, the claims handling is no different than if you were with a third party warranty company out there of any of them, okay, the customer. And depending if you have your own shop or that you're sending people out to another shop, if you're farming them out, what. You can do two different things. If you have your own shop, they would come into your shop, you would call in, your people would call in the claim just like they would any other claim. Now, and it's important to note, we don't make it public that you own a reinsurance company, okay, because everybody been there wanting you to pay everything if they thought that you had a big pot of gold. And so when you have an issue, and let me get through with your question first. So you, your customer comes in, they have a claim, they go to the shop, the shop calls in the claim just like they would any other shop. And we approve the claim. And it's. And if it's your own shop, would probably send you a check so that you're not paying credit card fees.

Right?

So. And just like any other, okay, what we put on all our contracts is if your customer is within 100 miles of you, then they must contact you or return to your repair facility. And the reason is that that way you have control. Now, if you have a customer that's outside of that and you want to, then it's fine. What we're going to do is we're going to pinpoint where you are. We're going to draw a geofence on a map on our computer that shows us where the customer is. And if they're outside of that hundred mile radi, then we're going to take care of it somewhere else. We can direct them to places to get it done for one thing. And number two, we're going to look out for you. We're not going to let them be taken advantage of. And if they. Let me give you a quick example. We had a customer, a dealer in Virginia had a buy here, pay here customer, drove to Florida, they broke down, it was a Ford. So they took it to the Ford store and the ford store wanted $3,000 to take care to fix the vehicle. Now, as a buy here pay dealer, that is a nightmare. Your customer is out of town and you're being held hostage by the Ford store. Okay. And your choices are limited. You can say, no, we're not going to pay it and the customer will leave it there and get on a bus and come home. Okay? Which you will end up doing something, paying for it, send a tow truck or whatever. But what happened was, is that we diverted the car to another shop and we got the car fixed for 900 bucks, paid the claim and had the customer back on the road and everybody's happy. So what I'm saying is that we're going to do what is in your best interest. We're looking out for you, we're looking out for your customer because that's in your best interest. But you are our customer. Look, we don't succeed unless you succeed. And we want to make sure that all of these problems that can arise are taken care of in a timely manner and so that you're not being taken advantage of. If we had to send an inspector out to, to make sure that what we're being told by some third party, you know, Joe's transmission, then we will. But if it's your own shop and we have a working relationship with that shop, then we're going to not. It's going to be an easy deal. The easiest claim procedures that you've ever had, and I think Luke can attest to that.

Is there gray area for us as a dealer to say yes or no? You know, that's one thing I've kind of heard about is hey, they're at this shop or they're at my shop. But the warranty company saying, hey, this is not Covered, you're totally out of the warranty coverage, or it's neglect, or it's this, that or the other. Are they able to be like, well, hey guys, you need to step in and do this anyways? Is that something we have the ability to do as a dealer?

Well, the thing is, is that as a dealer, you are able to do goodwill claims anytime you want to. Okay. And if it's a situation where it's a gray area claim and you. We're not gonna. We're gonna say based on what we see, whether it's covered or not. What's the language of the warranty say? If it's outside of that scope and you think it's in your best interest to take care of that customer, then we're gonna support that.

Okay. Through. Through the warrant, through the reinsurance company. Not a goodwill outside that I'd pay for out of my pocket.

It would. Well, no, you would not be paying it out of your pocket, but it would still be goodwill and needs to be handled that way that they understand that you're doing it outside the scope, even though you can order your insurance company to pay the claim.

And that happens with any manufacturers do that all day long. Warranties I've seen happen numerous times. So yeah, I think, yeah, it happens all the time.

That's possibility from us to give that the go ahead on something.

Hey, so we're ready to go. So let's talk about the. Let's talk about the company structure, Tim. And what is the cost if I want to do this tomorrow? What is it going to cost me out of pocket?

Well, to set up a reinsurance company, we issue 5,000 shares of stock. So what you would do is you would have to put up a dollar for each share of stock. And if you had partners or whatever, then they of course would put up a dollar for each share of stock. So if it was a 5050 deal, then you would both put up $2,500 to buy 2,500 shares of stock in this company. So it cost five grand to set it up. But now what we'll do is we open up an account in a trust company. And it's a trust. It's not a bank or savings account. It's a trust. So they don'. Money. And so we open that in the name of whatever you're going to call your company. So if you were going to call it Luke's Reinsurance company, you would make your check payable to Luke's Reinsurance company, and we would open an account in that name, we deposit that check in that company and we withdraw $3,500 to actually set up the company. And it could be a little bit different than that depending on the products that you're going to use. Like if you were doing CPI and service contracts, it may be slightly higher than that. But the point is whatever is left is left in as seed money, I guess you could say, in the reinsurance company, it's not spent.

And so what do we pay you each month? I mean, is there a fee involved in what's going on here?

Well, with every product, whether it's us or a third party company has what they call admin fees. And admin fees are based on the different products they go for. First is the insurance company that is standing in front of you. Number one, they want a piece of that. You have an administrator. The administrator is going to administer all the claims, but they're also going to keep up with all the accounting side of that. And then there is, they are what we call the servicing agency. And then there's us. We are the managing agency. The managing agency is there to be your hands and feet in this whole thing, to pull all the pieces together because there's a tremendous amount of pieces. So like when we set up this company and we set up your trust account, then we engaged a company like PricewaterhouseCoopers to actually formate the company and get it set up and licensed and that kind of thing.

That's great. So Jeff, you got any final questions here? We've learned all.

I've got so many I'm gonna have to call him afterwards.

But Jeff, is there anything that you think other dealers should know that we missed?

No. I mean, I think as I try to logistically think through this, I guess my only shtick would be the relationship or where is that line between my customer coming to me to get things fixed and me sending the customer to the reinsurance company? You know, at day one, they drive off the lot and come right back around the next morning because there's a clunk, clatter, something in their car. Do I say, hey, call the 800 number on your, on your contract. Don't talk to me. Or do I bring them in and do what I'm doing now, or I'm trying to make things right and then I try to go and make a claim to the warranty company. You know, the fine line between my own in house goodwill and where does that warranty step in? I think that's, that's maybe for mentally where I Would have to wrap my head around it. Right.

And just keep in mind that every dealership is different. Okay? We're going to take care of whatever claims that if it's a legitimate claim, we're going to take care of it. And there are going to be times when you look at something and you go, oh man, this was probably pre existing. In other words, something that if they came around the next day, it may be something that you, you know, your get ready guys missed and you want to, you know, just go ahead and take care of that and pay it out of policy. But otherwise, you know, other things that come up, you want to, you want to take care of your customer and you want to be able to and especially your buy here, pay here customer. But all your customers, if your customer has a problem and instead of holding them hostage or you have an opportunity to say to that customer, hey, no problem, come on down, we'll take care of that for you. And being able to do that is hugely liberating. And nothing endears you to your customer more than the fact that when they have a problem, you have taken care of it without punishing them for having a mechanical problem. That doesn't mean that they don't change oil when they're supposed to and that kind of thing. But when they have a problem and you have a system in place to take care of it, that is huge.

Yeah. And two more questions on those lines. Do you where you say I'm earning those premiums as they go. First part is do you have people look at the reinsurance company with two different philosophies, people who are really trying to sock money away, you know, tax deferred. And then other people who are just trying to run it as lean as possible and they see as it more of like a kind of a pass through expense. Is there two different philosophies of you know what you're going to charge, your reinsurance company is going to charge you for the premium?

Well, the thing is, is that if you're going to have an insurance company, it has to be an insurance company. It has to run like an insurance company. It is definitely not a savings account. And you know, Uncle Sam definitely frowns at savings accounts. What you're doing is in the eyes of say those who would be looking on is that you are, you're advocating and taking care of your customer, but you have charged them a premium for a product that is supposed to benefit them should they have a certain set of issues. And as long as you are taking care of those Certain set of issues, then that's what you're supposed to do. But you can't have an insurance company that never has claims. Okay? That's not possible. And so it is very important to have claims.

But there's a spectrum of that claim percentage, right, Tim? I mean, there's some people who are very high on that claim percentage and some people who are very low on their, you know, within the playing field.

Right, But. But there's also a great difference between the way that people do their get ready on their cars. You know, some, you know, in the amount of money that they're spending to put the car out on the lot, some guys blow out the McDonald's bags and put it on the front line, and others spend, you know, 15, $2,000 making sure that car is ready to roll. And some of the guy that does that's gonna have a heck of a lot less claims than the guy who.

That's. Okay, your way. My other question for you, Tim, was when you say we pay, we front those premiums as we collect them. Say it's a 24, 24. And that customer repos in month three, that contracts canceled right at month three.

That's correct. And just like. And just like any other contract, any other company, then you are required by state law to do a pro rata refund.

Okay, but we've only paid in three months of premium, so there's really nothing to pro rata.

Right, well, you're talking about from the buy here, pay here side or buy here, pay here. Yeah, yeah. From the buy here, pay here side. Yes. There would be nothing to refund because you're paying it in, you know, in a pro rata mat method anyway.

So I think that, I mean, that's the biggest probably hurdle for me is just the cash flow standpoint. And when I do the straight math, I say, well, I'm funding, you know, 20 contracts at $1,000 each. I can't suck 20 grand out a month. But you're really. You hit month 2436, and you've got your funding, you know, 2, 300 contracts, but only a little teeny bit of them each month.

Yep, that's right.

That makes a lot more sense.

All right, well, I think. I think it's time to wrap this thing up. And one thing I wanted to hit on that, that Tim kind of. He touched on this a minute ago. This product is a great product. And one of the reasons is some of us in the business maybe don't have a good way to take care of our customers after the sale. And this product, if you don't have that money sitting aside to be able to do that using a reinsurance company will help you help your customers. And that's really what it's all about.

Absolutely it is. And that's the thing. I had a dealer tell me one time, he said, you know, it's great that we can make a profit in our reinsurance company, but I'm telling you, if I didn't make a dime, I am a better dealer because of this, because I am able to take care of the customers when they have problems. And that's huge. It really is. And especially in Buy Here, Pay Here, because I promise you, you know this to be true. If you're in Buy Here, Pay here, and you're not doing that, then your repo rate is going to be horrendous.

Okay?

And that's just not productive for the life of a Buy Here, Pay Here company.

All right, Tim, plug your company, if you will.

Yeah. How do we get ahold of you?

Well, my name is Tim Byrd, and I'm the CEO of Dealer Re. We are reinsurance experts. Our phone number is 804-824-9533. Our website is dealerre.com and we would love to talk to you about your business to see if this is a fit for you and to do everything we can to analyze your company and make sure that you have the right products that help you succeed. Because as I said before, we don't succeed unless you succeed.

Awesome.

Awesome. Thanks, Tim.

Thank you. Y' all have a blessed day.