July 15, 2024
The auto insurance market is showing signs of stabilizing after a tumultuous post-pandemic decline, creating profit opportunities for dealers.
Why this matters: Even though back-end profit continues to outpace other income sources in the dealership, there are still plenty of opportunities to drive front-end revenue, including through F&I. With demand slowly returning for quality insurance products, dealers need to know what buyers are looking for and the factors that drive them to make a purchase.
The data: According to the latest Polly Quarterly Embedded Auto Insurance Report, the car insurance market has now improved for two quarters, finally reversing course after high premiums drastically suppressed demand throughout the U.S. That being said, the number of opportunities range heavily depending on where dealerships are located.
What factors are driving F&I profit?
-
Embedded insurance: Dealers who incorporate insurance sales into the car buying process continue to see higher F&I revenue, even when their customers decline to make a purchase. Just showing buyers an insurance quote boosts F&I gross profit by 18% (up from 13% in Q1). Customers who switched insurance plans and saved money in Q2 contributed an additional 29% in profit, although this is slightly behind the previous quarter. Back-end profit also benefits from integrated insurance sales, jumping roughly 20% in Polly’s sample of 10 dealership groups.
-
VSCs: The number of Vehicle Service Contracts (VSC) dealers sign continues to be closely tied to insurance sales. Embedding insurance quotes into the car buying process boosted the volume of VSC agreements by about 21% in Q2, compared to transactions where a quote was not discussed. While VSCs have been trending downward for the last three years, sales that included insurance continue to see a VSC penetration 9% above the average.
Bottom line: Overall, the auto insurance market is starting to improve after a prolonged slump. That being said, plenty of challenges remain in the F&I sector. Using the right strategies in the sales process will mean the difference between maintaining or losing profits.
Article originally published on Car Dealership Guy News
Tag(s):
News