THE AUTO INSURANCE LANDSCAPE FOR DEALERS

A Quick Guide for Assessing Your Options

Download the Quick Guide

Part 1: Why Dealers Should Be Thinking About Auto Insurance

Reason 1: Dealers Should Be Thinking About Auto Insurance Because Their Customers Are

84% Concerned With Total Cost of Car Ownership

Car Buyers are Thinking about the Total Cost of Ownership

It’s become a more pressing concern in the face of inflation, which has caused the cost of car ownership to increase dramatically. At the end of 2023, the average car payment was $751. And while it looks like there will be some relief on the horizon, particularly for those with a strong credit profile, vehicle affordability issues are likely to persist throughout 2024. We know that consumers are concerned with the total cost of ownership; 84% cite it as an important attribute when purchasing a car.

Car Buyers Already See It As an Integral Part of the Car-Buying Process

3 out of 4 car buyers who researched car insurance did so before they bought their vehicle. Over half of Millennials and Gen Z buyers begin their research before even stepping onto the lot.

Car Buyers Want Insurance in the Process

79% Car Buyers Want Embedded Insurance

Perhaps most importantly, car buyers report that they want insurance to be a seamless part of their overall purchase experience. 79% of car buyers want insurance integrated into the car deal. 3 out of 4 Millennials and Gen Z buyers say that buying their auto insurance and vehicle together would be easier and more convenient for them.

Reason 2: Dealers Should Be Thinking About Auto Insurance Because It’s An Income Opportunity

21% Average Increase On Back-End Gross As margins return to their pre-COVID levels, smart dealers are looking not only to cut costs and drive efficiencies, but also to diversify their income streams. Insurance is one of few ways for a dealer to create a recurring income stream. Customers can also immediately apply any insurance savings in the back office, increasing F&I revenue.

*Comparison of 375,459 vehicles transactions in 2023 where consumers purchased insurance from Polly vs. consumers did not purchase insurance from Polly. Actual amounts may vary.

Part 2: How Dealers Can Add Insurance to their Process

Dealers can either deal with the insurance issue as it arises, or they can embrace insurance in a way that turns it into an asset for them – both in terms of customer experience and dealership financials.

Let’s take a look at the potential solutions and examine the benefits and drawbacks of each. Dealers should base their approach on their desired level of risk, as well as how much time and energy they want to put toward the solution.

Local Insurance Referral

Option 1: Local Referral

This is the solution many dealers use today, though they have varying levels of control over or knowledge about how their salespeople are involved. It can be as simple as salespeople handing car-buyers the business card of a local insurance agent. But this approach can be troublesome for two reasons.

First, there are compliance and regulatory concerns. If the agent is “gifting” anything to the dealership salesperson, it may be for the sale of policies, which puts the dealer at risk.
Second, if the salesperson is more involved than simply handing over the business card, they may be sending the consumer’s information to the insurance agent via text message or email, both of which put the consumer’s personal information at risk.

Local Insurance Referral

Option 1: Local Referral

First, there are compliance and regulatory concerns. If the agent is “gifting” anything to the dealership salesperson, it may be for the sale of policies, which puts the dealer at risk.
Second, if the salesperson is more involved than simply handing over the business card, they may be sending the consumer’s information to the insurance agent via text message or email, both of which put the consumer’s personal information at risk.

In terms of the benefits of this approach – well, the immediate need is solved for the customer, albeit in a way that doesn’t really create any added value for them. It also doesn’t require any investment from the dealer, either financially or time-wise.

Local Referral Insurance Benefits

Insurance In The Vehicle Showroom

Option 2: Setting Up One Insurance Brand In Your Showroom

In this model, a dealer works with a single insurance carrier to make that carrier available to customers on site during the car-buying process. Car-buyers can handle their insurance easily with a reputable brand. For dealers, this is a step in the direction of seeing insurance as an income opportunity.

With this approach, there is some financial upside. The dealer owns the agency, and the more types of insurance offered, the more potential earnings. When partnered with a single carrier, dealers also benefit from co-branded advertising, consultative support, and very likely, the brand recognition of a nationally known insurance company.

Insurance In The Vehicle Showroom

Option 2: Setting Up One Insurance Brand In Your Showroom

What are the drawbacks? There are a few:

Start-up costs (recruiting fees, agency manager salary, licensing expenses, showroom floor space etc.)
Time and effort – you’re running another business
Speed to market – 6+ months
One insurance carrier cannot meet the needs of all customers

Vehicle Showroom Insurance Benefits

Independent Insurance Agency

Option 3: Building an Independent Agency From Scratch

With this approach, dealers are quite literally taking ownership of insurance in their dealership. On the positive side, car buyers have access to more than just one insurance carrier, which means they are more likely to find coverage that suits them, and potentially saves them money. Of all the approaches, it’s also the one with the most potential income for the dealer since it involves running a full, independent agency. For dealers ready to make a big commitment to another line of business, it could be the right fit.

Independent Insurance Agency

Option 3: Building an Independent Agency From Scratch

But here's what is involved:

Start-up costs - you’ll be starting a whole new business
Time and effort – you’re running an insurance agency all yourself, without the backing of a specific carrier
Speed to market – 6+ months
Requires knowledge of insurance industry and regulations
Requires using your showroom space
Marketing costs – although you will have a captive audience in your showroom, you’ll need to advertise beyond that base to maximize your revenue potential

Independent Insurance Agency Benefits

Embedded Auto Insurance

Option 4: An Embedded Auto Insurance Platform

For many dealers, this is the goldilocks approach because it requires minimal effort for great results. With an embedded auto insurance platform, the platform vendor provides you with access to their technology and pays you, either for referrals, or, if you’re operating with a licensed entity, a percentage of the insurance commissions.

It can:

Be a source of recurring income for dealers
Increase customer spend in the F&I office
Enhance the customer experience

Embedded Auto Insurance

Option 4: An Embedded Auto Insurance Platform

It can:

Be a source of recurring income for dealers
Increase customer spend in the F&I office
Enhance the customer experience

And these platforms can generally be added immediately, without any real start-up costs. For best results, it will require that salespeople consistently introduce the vendor so that all customers understand they have the option to shop for insurance during the car-buying process. This is a good fit for dealers who would like to add a revenue stream and improve the customer experience, but do not want to start up and manage an entirely new line of business.

A reputable vendor will have a full call center that can meet the demands of your busiest Saturday, as well as a buy online option for customers who prefer to buy without speaking to anyone. It should also have integration options to make it easy to present in your dealership.

Embedded Auto Insurance Benefits

So, what model is right for you?

If you’re interested in insurance but not quite sure where to begin, you’ll want to think about how much time and money you want to invest and whether you have the appetite to start a new business. To find out if you’re a good candidate for an embedded auto insurance platform, you can also take our quiz.