How to Evaluate a Dealer Reinsurance Program Before It Costs You Money

Before reinsurance costs you money, make sure you understand the structure, fees, and assumptions behind it.

Most dealers do not set out to choose a bad reinsurance program. In fact, the majority of programs I review were entered with good intentions and strong expectations. The problem is not participation. The problem is that many dealers never truly evaluate what they are in.

Reinsurance is often treated as a long-term decision that should not be questioned once it is set up. In my experience, that mindset is where costly mistakes begin. Volume grows, time passes, and assumptions go unchallenged. By the time a dealer realizes something is off, years of opportunity may already be gone.

This article outlines how I evaluate a dealer reinsurance program when a dealer asks me to review it. Not from a sales perspective, but from a structural one. The goal is simple: determine whether the program is working as intended, or whether it is quietly costing the dealership money.

Why Most Dealers Never Truly Evaluate Their Reinsurance Program

Reinsurance is often positioned as a “set it and forget it” strategy. Once contracts are flowing and reports are being generated, the program fades into the background of monthly operations. As long as there is no obvious problem, it rarely gets revisited.

There are three reasons this happens.

First, reinsurance is complex by design. Many dealers rely heavily on administrators and advisors to interpret results rather than fully understanding the mechanics themselves.

Second, early performance can be misleading. Reserves are building, claims are immature, and distributions may not yet reflect long-term reality. This creates a false sense of comfort.

Third, trust replaces verification. Dealers assume that because the program is compliant and functioning, it must be optimized.

None of those assumptions guarantee performance.

The Five Areas That Determine Whether a Program Is Working

When I evaluate a reinsurance program, I focus on five specific areas. Every issue I have seen ties back to one or more of these.

Fee Transparency

Fees are not inherently bad. They are necessary. The problem is when they are unclear, layered, or misunderstood.

What I Look For

I want to see a complete breakdown of every fee deducted before underwriting profit is calculated. That includes administrative fees, claims adjudication fees, ceding fees, and any embedded program costs.

If a dealer cannot answer where each dollar of premium goes before profit is determined, transparency is lacking.

Why This Matters

Even small percentage differences compound significantly over time. A program that looks “reasonable” on the surface can quietly erode long-term profitability if fees are excessive or poorly structured.

Reserve Methodology

Reserves are one of the most misunderstood components of reinsurance. They are also one of the most impactful.

Who Sets the Assumptions

I want to know who controls reserve assumptions and how often they are reviewed. Are they static, or do they adjust as claims mature and data improves?

How Reserves Affect Distributions

Overly conservative reserves delay profit recognition. Overly aggressive reserves create volatility later. Both scenarios affect how dealers perceive performance.

If a dealer does not understand how reserves are calculated and adjusted, they cannot accurately evaluate their program.

Reporting Quality

Reporting tells the story of the program. Poor reporting hides it.

Monthly vs Annual Visibility

Annual summaries are not enough. I expect consistent monthly reporting that shows claims activity, reserve changes, expenses, and underwriting results.

Product-Level Detail

Blended reporting masks problems. Product-level visibility allows dealers to see which products belong in reinsurance and which do not.

If reporting cannot answer basic performance questions, the structure is already working against the dealer.

Control and Ownership

Ownership and control are not the same thing, and both matter.

Who Controls the Money

I evaluate who controls reserves, investment decisions, and distributions. In many programs, the dealer participates in results but has little influence over decision-making.

Flexibility Over Time

As volume grows and strategy evolves, the structure should allow adaptation. Programs that lock dealers into rigid frameworks often limit long-term value.

Control does not guarantee success, but lack of control guarantees dependence.

Support Beyond Setup

Reinsurance success is not just financial. It is operational.

Training and Product Strategy

Programs perform best when product mix is disciplined and supported by consistent training. I look for active involvement beyond initial setup.

Ongoing Optimization

Markets change. Products evolve. Claims trends shift. Programs that are not reviewed and refined over time eventually fall behind.

If support ends after onboarding, performance will follow.

Warning Signs Dealers Should Not Ignore

Certain responses immediately raise concern when I am reviewing a program.

“We Don’t Have That Report”

If basic performance data is unavailable, the issue is not reporting—it is transparency.

“Just Trust the Actuary”

Actuarial work is essential, but blind trust without understanding is risky. Dealers should know what assumptions are being used and why.

“That’s Just How It Works”

This is often used to deflect legitimate questions. Well-structured programs welcome scrutiny.

When It Makes Sense to Stay Versus Change

Not every underperforming program needs to be replaced. Some can be improved. Others cannot.

When a Program Can Be Fixed

If the structure is sound but execution is lacking, changes in reporting, training, or product mix may be enough to improve results.

When Structure Is the Problem

If fees are excessive, transparency is limited, or control is fundamentally misaligned, no amount of optimization will fix the issue. In those cases, change becomes strategic rather than optional.

Why Evaluation Should Be Ongoing

Reinsurance is not static. Volume changes, products evolve, and dealership goals shift over time. Programs that are appropriate today may not be optimal tomorrow.

I encourage dealers to view reinsurance evaluation as an ongoing process, not a one-time event. Periodic reviews ensure the structure continues to align with long-term objectives rather than drifting into complacency.

Moving Forward With Confidence

The goal of evaluating a reinsurance program is not to create doubt. It is to create clarity.

Dealers who understand how their program works make better decisions. They ask better questions. They retain control over an asset that is meant to support long-term value, not undermine it.

This site exists to provide that clarity. As future articles explore specific structures, product strategy, and real-world considerations, the objective remains the same: help dealers make informed decisions based on understanding rather than assumption.

Dealers who want to move beyond surface-level participation benefit most from side-by-side evaluations that focus on structure, fees, and control. Advisors who prioritize transparency and education help ensure reinsurance serves the dealership, not the other way around.

Frequently Asked Questions

What should I review first when evaluating my dealer reinsurance program?

Start with transparency: where each dollar of premium goes before profit is calculated. If you cannot clearly see fees, reserve deductions, and how underwriting profit is determined, you cannot accurately evaluate performance.

How often should a dealership evaluate its reinsurance program?

At minimum, review performance quarterly and conduct a deeper structural review annually. Reinsurance is long-term, but the inputs—fees, reserves, product mix, and claims trends—change over time.

What reports should I expect from a transparent reinsurance program?

You should expect consistent monthly reporting that includes premium, claims activity, loss ratios, expense deductions, reserve changes, and underwriting results. Ideally, reporting is available at the product level, not just blended totals.

Why does my reinsurance program show profit on paper but pay very little out?

This is often caused by reserve methodology, delayed distribution schedules, or layers of fees deducted before underwriting profit is distributed. A program can generate surplus while still restricting cash flow to the dealer.

Are administrative fees always negotiable?

Not always, but they should always be explainable. The key is understanding what the fee covers, whether there are additional layered fees, and whether the services being provided justify the cost.

What is a “red flag” response when I ask questions about my program?

Red flags include: “We don’t have that report,” “Just trust the actuary,” and “That’s just how it works.” Well-structured programs welcome scrutiny and can clearly document their methodology.

Can an underperforming reinsurance program be improved without switching?

Sometimes. If the underlying structure is sound, improvements in reporting, product mix, training, and ongoing oversight can materially improve performance. If fees, control, or transparency are fundamentally misaligned, change may be necessary.

What role does product mix play in reinsurance results?

A major one. Some products are stable and predictable; others are volatile. A disciplined product portfolio and consistent F&I process often drive better long-term underwriting outcomes than volume alone.

What should I understand about reserves before judging my program?

You should know who sets reserve assumptions, how they are reviewed, and how reserve changes affect profit recognition and distributions. Reserves are necessary, but overly conservative assumptions can suppress results for years.

When does it make sense to move from a retro program to a captive or DOWC structure?

Typically when volume, operational discipline, and long-term goals justify greater control and transparency. The right move depends on risk tolerance, product performance, governance support, and the quality of partners involved.