The Three Cs You Need to Know About Force-Placed Insurance

By Eric S. Hurst
Chief Operating Officer
Empire Indemnity Insurance Company Risk Retention Group, Inc.

In the ever-changing landscape of Buy Here Pay Here lending, the success or failure of your dealership hinges on the choices you make. The past 18 months have seen seismic shifts in the market, with some once-thriving dealerships now bearing grim “Closed” signs, while others have resorted to Chapter 11 bankruptcy. In turbulent times, one of the most crucial decisions you can make is regarding your force-placed insurance program (also known as CPI).

As someone who’s met countless dealers facing these challenges, I’ve distilled the wisdom of experience into what I call the “Three Cs of Force-Placed Insurance”: Cost, Claims, and Compliance. Allow me to take you on a journey through these pillars, urging you to reevaluate your current approach and inspiring you to explore better options.

Cost: The Financial Lifeblood of Your Dealership

The first “C” is arguably the most critical: Cost. In the face of market upheaval, tightening budgets, and uncertain economic waters, every dollar saved counts. Many dealers I’ve spoken to have voiced their concerns about the increasing costs and fees associated with force-placed insurance programs.

It’s imperative to assess your expenditures meticulously. Consider shopping around the market. Don’t let your dealership be among the casualties of outdated, costly programs. Seek out more cost-effective alternatives and take advantage of cost-saving opportunities like buying direct.

Claims: The Need for Speed and Efficiency

The second “C” deals with Claims. Speed is essential when it comes to insurance claims. Ask yourself how quickly your insurance program pays your claims. Are you utilizing a secure portal for claims processing? These questions aren’t trivial, they can have a substantial impact on your bottom line.

Here’s some Napkin Math to illustrate the gravity of the issue (time is money as the saying goes). Say you’re dealing with a $10,000 claim. In today’s world, where the cost of capital is a minimum 10%, waiting for your insurance company to take 14 days to process your claim could cost you approximately $40 per claim. You’re bleeding significant returns all because it took too long. I have seen this scenario play out in excess of $1200 per month in undue carry costs.  

To stay ahead, leverage the latest and greatest tech-efficient programs and processes that streamline claims handling. Time is money, and the faster you can recover your funds, the more resilient your dealership becomes.

Compliance: Navigating the Regulatory Minefield

The third and final “C” is Compliance. In a world increasingly concerned with data security and regulatory compliance, you must operate with utmost diligence. A secure portal with the ability to submit claims and sensitive customer data is non-negotiable. The days of emailing claims and spreadsheets are gone.

To navigate this complex terrain successfully, you need to continually review your processes and assess your compliance risk. Failure in this regard can lead to costly repercussions and potential legal entanglements.

In summary, the Three Cs of Force-Placed Insurance — Cost, Claims, and Compliance — form the bedrock of a thriving BHPH dealership. The financial health of your business depends on these factors. You simply cannot afford to neglect them.

To succeed, explore cost-effective alternatives, invest in technology that expedites claims processing, and commit to stringent compliance practices. Your dealership’s future hinges on the decisions you make today. Embrace change, adapt, and position yourself as a resilient force in the BHPH market.

Remember, it’s not just about surviving; it’s about thriving. Make the Three C’s your guiding principles, and you’ll find yourself at the forefront of the industry, steering your dealership towards a prosperous future.

You can also read this article in the digital publication BHPH Dealer.