Once a giant, credit life insurance fades away

Charles Oglesby, Asbury Automotive Group: "That will be minimal, if any, of our revenue."
Once a powerhouse revenue generator in the F&I office, credit life and disability insurance is on the wane.

Tighter regulations and more attractive insurance products have moved credit insurance to the back burner, according to several dealers and F&I experts.

It's a dying business, said Dave Robertson, executive director of the Association of Finance & Insurance Professionals in Colleyville, Texas. “Sales have dropped every year since I've been” in the industry, he told Automotive News.

Gary Fagg, a consulting actuary with CreditRe of Hurst, Texas, said credit insurance, which peaked in 1980, used to be accepted by about 70 percent of customers financing in the dealership F&I office.

Today the acceptance rate has plummeted to about 5 percent. Fagg estimates that credit insurance sales are now less than $300 million annually, down from a peak 30 years ago that would equal $2 billion in today's dollars.

One of the nation's largest dealership groups agrees that credit insurance has gone by the wayside.

“That will be minimal, if any, of our revenue,” said Charles Oglesby, CEO of Asbury Automotive Group Inc., the 80-store public dealership group based in suburban Atlanta.

Glenn Mears, owner of Parkway Auto Group, which has three dealerships in Dover, Ohio, said his credit insurance revenue has been in decline for at least 10 years.

The amount of premium income possible in Ohio has been regulated downward over the years, Mears said. And products such as service contracts are more lucrative -- plus they tie the customer more closely to the dealership, improving the prospect of repeat business.

“I'd rather have someone spend X number of dollars to ensure they're going to come back into our service department than ensure that their car is paid off when they die,” Mears said. “It's easier to sell that value.”States limit profits

Stricter regulation is a driving factor in the decline. States have lowered the prima facie rate dealerships can charge for credit insurance, Robertson said. That has trimmed profit margins.

“So states like California, there's no money in it, no reason for the dealer to sell it,” Robertson said.

An increasing number of dealers don't even offer credit life and disability, said Kevin Cunningham, director of business development for NCM Associates Inc. in Overland Park, Kan.

That's the case for Ed Witt, who operates a Lincoln-Mercury dealership in San Diego. He doesn't sell credit life and disability insurance now -- a change from his previous experience as a dealer in Wisconsin 13 years ago.

“In Wisconsin it was important,” said Witt, who recalls that a lot of consumers requested the coverage. “We absolutely did sell it, and it certainly was responsible for income on the back end of the deal.”

But once Witt made the move to San Diego, “California just made it way too difficult to even consider dealing with,” he said.

Outpaced by new products

In addition to the regulatory pinch, credit life and disability insurance also is being outpaced by other products that offer more concrete value to car buyers.

Service contracts or GAP insurance have more upside for the customer and dealer both, dealers and experts said. Traditional life insurance policies even cost less when dollar-for-dollar benefits are compared.

Back when sales of credit insurance began, it was the only product in the F&I office, Fagg said. And dealership employees turned on the pressure to get customers to buy.

But times have changed. Service contracts came along in the early 1980s. Unlike credit insurance rates, which are governed by state regulators, dealers can buy today's F&I office products at wholesale and set their own retail prices, Fagg said.

Those newer products “have far more appeal and at least as much compensation” for customers and dealers, Fagg said. “I'm astounded [credit insurance revenue] is anywhere.”

On the wane
Dealerships have stopped selling credit life and disability insurance because
• Stricter regulations have trimmed profit margins on the product
• Newer products, such as service contracts and GAP insurance, offer more concrete value.

You can reach Amy Wilson at awilson@crain.com

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