By Ryan Hanlon
RV dealers across America are forming reinsurance companies to capture underwriting profits on the insurable products sold in their dealerships. But if you aren’t investing your earnings — or if your provider severely limits your investment options — you may be leaving a considerable amount of money on the table.
Let’s discuss five things you need to know before you select your program and your investment strategy:
1. Your Goals Are to Protect the Principal and Beat Inflation.
Statista projects the U.S. inflation rate will vary between 2.25% and 2.5% over the next five years. The latest Moody’s survey puts the average money market rate at 0.7%. Savings accounts earn even less.
There is no way to accurately project the rate of return on investment accounts or capital investments, such as dealership real estate or facilities. But you can rest assured they will very likely far outpace inflation — certainly much more likely than putting your money in the bank or a money market account.
2. You Need to See the IPS.
Every reinsurance provider has rules that limit when, where and how much of your earned and unearned premiums can be invested. These rules are codified in the provider’s investment policy statement.
Before you sign with a provider, you have to see their IPS. You may be surprised by how limited your options are. Some go so far as to require you to send all your premiums to a bank approved by the provider or their insurance carrier.
If that is the case, they may be reluctant to share their IPS with you. They may even refuse, calling it “proprietary.” It’s not, and that is a major red flag.
3. Your Advisors Must Be Involved.
I would not expect you to read, analyze and fully comprehend any reinsurance provider’s IPS — and neither should any provider. They should not only be willing to work with your trusted financial advisors and wealth managers, they should encourage it. Their programs are competitive and dealer-friendly, and they want you to know it.
4. Speculation Is Best Left to the Experts.
The freedom to invest your own earnings within generous guidelines is a huge advantage. But I would advise against the temptation to invest in individual speculative stocks or the latest investing fad.
Everyone knows someone who jumped on the GameStop, AMC Theatres and BlackBerry short squeezes last year. Yes, those were exciting opportunities. Yes, many people profited. No, speculation is not a recipe for long-term success.
Listen to your advisors, focus on the future and choose investment vehicles that will pay off over the long haul.
5. A Bird in Hand Is Worth Less Than You Think.
I work with an RV dealer who was an early reinsurance adopter and stayed with his first provider for 17 years. He made more than $1 million and was quite happy — until he started meeting with other providers and realized how much more he could have made on a more competitive program.
When it comes to reinsurance, you can’t just check the proverbial box and move on. You must leave no stone unturned in your search for the ideal provider and program. You should insist on total transparency and maximum flexibility and be prepared to move on if you don’t get it.
As always, if you are ready to form your first reinsurance company or want a second opinion on your current program, please feel free to reach out today.
Ryan Hanlon is a managing director for Portfolio, a leading provider of reinsurance and F&I programs for RV dealers, and a 16-year industry veteran. For more information or to schedule a confidential consultation with a Portfolio reinsurance expert, email inquiry@portfolioco.com today.
