Participation can be one of the most powerful tools in your dealership’s financial strategy – but only if it’s set up correctly. Many dealers overlook how much control and profit potential they’re handing away with poorly structured programs. If you haven’t reviewed your participation structure in a while, now’s the time to ask: Are you maximizing your profits and long-term wealth?
Unlocking Wealth with the Right Participation Structure
Participation allows you to retain profits from F&I products you’re already selling. But not every structure delivers the same results. As the regulatory landscape evolves and the market matures, selecting a structure that matches your business goals is more important than ever.
Customization Is Key: One Size Doesn’t Fit All
Every dealership is different. A strong participation strategy requires tailored solutions that align with your unique financial targets and level of control. Working with experienced financial, compliance, and participation experts who understand the nuances can help you select the best-fitting program structure to optimize returns.
Exploring an Option: Reinsurance vs. DOWC
Not sure which structure is right for you? Here’s a simplified breakdown:
- Balancing risk and reward: Reinsurance is ideal for well-established dealers ready to explore participation more deeply. It enables participation in insurance profits and investment income, without the dealer establishing a provider, striking a balance between risk and potential rewards so long as premium does not exceed a certain amount. This structure is more hands-off, offering less operational involvement, which may appeal to dealers looking for participation without the responsibilities of day-to-day administration.
- The industry-leading structure: A DOWC is a domestic C-corporation that serves as the provider of F&I products. As the provider, it receives premium and is responsible for payment of consumer claims made under the F&I products. The DOWC is considered an insurance company for federal tax purposes, but not regulatory purposes. Still, it must satisfy all state and lender requirements, including licensing and the establishment of financial security, where applicable. This structure allows dealers to seek greater control and involvement, though care must be taken to address control group considerations for tax and compliance purposes.
Know Your Numbers: Track Performance with Cession Statements
Your quarterly cession statements are a goldmine of insight. Use them to monitor claim ratios, profit margins, and the overall performance of your reinsurance entity. Aim for a healthy loss ratio to keep your program sustainable and profitable.
The 18-Month Check-Up Rule
Reevaluate your participation setup at least every 18 months. Markets shift, risk profiles change, and fee structures can drift. Regular reviews help you catch inefficiencies, make adjustments, and stay ahead of costly surprises.
Stay Informed, Stay Profitable
The daily demands of dealership operations often leave little time for financial oversight – but that’s exactly why regular strategy reviews matter. Talk to your participation provider, accountant, and agent every quarter. A collaborative approach keeps everyone aligned and ensures your program is optimized for success.
Your participation strategy shouldn’t run on autopilot. With the right structure, regular reviews, and expert guidance, you can unlock hidden profits, protect your financial interests, and build long-term wealth. It’s time to take back control – and make participation work harder for your dealership.
