Can Re-Insurance Be Used In A Points-Based Loyalty Program? | Auto Awards
Re-Insurance In An Automotive Loyalty Rewards Program


We realize that the success and future of your dealership is connected to loyal customers. Most car manufacturing plants realize this as well and as a result, they offer incentives or rewards to dealerships that are able to retain loyal customers. Reward programs, such as points-based rewards programs, have slowly grown and become a popular tool within the auto industry within the last 20 years. The following article by Tim Byrd, originally published on DealerRE, discusses a different kind of accelerated profit program to gain loyal customers in a reinsurance program.

Keep in mind, including a point based loyalty program or an inner prepaid maintenance program into your reinsurance program begins with really seeing how it functions and how to set it up effectively. See how Tim proposes it can be accomplished.

This article is a republication of “The Answer to Reinsuring Points-Based Loyalty Programs” by Tim Byrd.

Build a Different Kind of Accelerated Profit Access Program

Loyal customers become more profitable over their ownership life cycle as they purchase new products, repair older ones and recruit others to do the same. In fact, customer loyalty is the single most important driver of growth and profitability for a dealership. A properly retained customer base that actively spends money and becomes a referral source to drive additional incremental business allows dealers to effectively reduce their overall spray and prey advertising spend. Live by the door, die by the door. That simple.

I have had the opportunity to work with dealerships that implemented very successful loyalty strategies and the companies that create, implement and manage them.  As a car dealer reinsurance expert, I am often asked if the contingent liability that is created by a point-based loyalty strategy or if an internal pre-paid maintenance program can be seeded into a reinsurance environment. The answer is yes, with a true understanding of the rules and if the loyalty company you choose to work with truly understands your business. Existing F & I products may dovetail neatly with a points-based loyalty program or a customized pre-paid maintenance program and work well for a dealer-owned reinsurance company. But, like all insurable products, the devil is in the details.

The opportunity to take the risk created by this customer-driven incentive program and transfer that risk to a dealer-owned reinsurance company works by systematically reserving a percentage of the points accumulated each month by each customer into a dealer-owned reinsurance company. The fact is, breakage is not necessarily good for your long-term retention goals, but certainly part of the reality and why a dealer-owned reinsurance company may make sense.

A few preliminary thoughts to consider are a program must be based on a “cash-in, cash out” model and provide a clear and structured process to earn out over time. Premium can only be a fraction of the total liability and your loyalty partner MUST have the ability to track this liability accurately and in real time. Not only must the points (liability) being earned be tracked accurately, the points earning out or redeemed are also vital data to making it work. If both sides are accurately tracked, premium deemed unclaimed or earned out can become underwriting profit.

Combining this approach with other products such as warranties and Vehicle Service Contracts, the dealer is assured a tremendous profit center from their Dealer-owned Reinsurance Company. An often misunderstood benefit to a Dealer-owned Reinsurance Company is that they are small Property and Causality insurance companies.  “Small property and casualty insurance companies with less than $1,200,000 in annual net premiums may elect to be taxed only on investment income under Internal Revenue Code 831 (b).” So, when setting aside premium reserve in your reinsurance company to transfer the risk created, unlike making a deposit in your account at the local bank, you are not increasing your taxable net profits.

Remember, including a points-based loyalty program or an internal pre-paid maintenance program into your reinsurance program starts with truly understanding how it works and how to set it up correctly. Do your homework and partner with a loyalty program provider with a long track record, a solid ability to track your points and ability to report it as needed. If you are considering developing a program or have one and would like to better understand how to seed it into an existing dealer-owned reinsurance program, speak to an expert and know the rules.

Tim Byrd is Founder and President of DealerRE a Tim Byrd & Associates company, a managing agency located in Gloucester, Virginia. An Auto Industry Expert on Dealer Owned Reinsurance Companies, BHPH Operations, Dealership and F&I Development. A 25+ year veteran of the car business, Tim is a trusted advisor to many car dealers. Tim has appeared on Auto Dealer Live and has been featured many times in AutoSuccess Magazine, Dealer Solutions Magazine, The Virginia Independent News, Special Finance Insider, Around the Commonwealth, The BHPH Report, and the Dealer Business Journal. Tim is a sought after speaker and co-author of the #1 Best Selling books “Unfair Advantage” and the just released new book Race to the Finish Line. First and foremost, Tim is a Christian man whose values, he strives, are a reflection of those of his Lord and Savior Jesus Christ. Tim can be reached at or by calling 804-824-9533.

If you would like to create an automotive loyalty program to help your dealership then be sure to contact Auto Awards.


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