Warrantech hunts automaker tie-ups

Warrantech Corp. expects to pursue more relationships with automakers this year, says Chris Murphy, executive vice president of sales for the automotive sector.

He also says dealers can expect more regional pricing for tire-and-wheel policies since claims vary a lot from region to region. Sales in the service lane are another growing trend.

Warrantech, of Bedford, Texas, administers extended-service contracts and other F&I products. It provides private-label extended-service contracts for the Volvo and Mazda brands and GAP policies for Chrysler Group. Warrantech has been a unit of AmTrust Financial Services Inc. of New York since 2010.

Murphy spoke with Automotive News Special Correspondent Jim Henry.

You have a relationship with Volvo. Are you pursuing more automaker relationships?

We are pursuing a couple of OEM relationships. Because of confidentiality, that's about all I can say about that, but yes.

Toward the end of 2011 we launched Volvo VIP. In July 2012 we launched Mazda. Recently we announced the NIADA, and on Nov. 22, I think it was, we announced that we got the Chrysler GAP business.

[Volvo's VIP program refers to Volvo Increased Protection extended-service contracts. Mazda's extended-service contract program is called Mazda Extended Confidence. Warrantech also administers a certified used-vehicle program for the National Independent Automobile Dealers Association of used-car dealers in Arlington, Texas.]

What types of programs do you offer dealers in terms of participation in risks and rewards?

We offer dealer partners several different types of programs, ranging from a walkaway, where there's no participation, to reinsurance, where the dealer participates in all the underwriting programs. Everything is insured, so that there's no additional risk to the dealer. We offer the same things to our OEM partners.

Do you do a lot of reinsurance?

The majority of our business is reinsurance with our dealer partners, where they are profiting from the reinsurance.

Are dealers starting to reinsure products other than service contracts?

GAP is starting to be reinsured. Service contracts are typically the No. 1 product that's being reinsured. But some of the lower-risk products, like etch or theft products and appearance products, are also being reinsured.

How about tire-and-wheel? Some are reporting astronomical claims. One speaker at an F&I conference said he bought the same customer eight sets of tires.

For AmTrust and Warrantech, we've experienced the same kind of losses with tire-and-wheel. Prices have increased throughout the years. All our competitors have experienced the same type of losses.

But it's a great product. It's a value-add product for the customer. It's a product customers can relate to if they've had a flat tire in their lifetime. Unfortunately, the low-profile tires and the light-alloy wheels don't hold up all that well if they hit a pothole.

What can administrators and insurers do about those losses? Implement higher deductibles or regional pricing?

I think you'll find more regional pricing coming out in the future. Another measure that some administrators are taking is repairing rims [instead of replacing them] where they can be repaired. Obviously safety is the priority, but in cases where the damage is strictly cosmetic, that could be appropriate.

Does having your own insurance company make much difference at the retail level?

Of course. Being vertically integrated allows us to draw on our parent company's underwriting experience to make sure that products are properly rated so the dealer can reap the rewards while still allowing the customer to take full advantage of the features and benefits. The first goal is to make sure the dealer is happy but also to give the customer the most coverage they can possibly purchase. That's the balancing act that everybody has to perform, and it helps to be vertically integrated.

The publicly traded dealer groups are gradually selling more F&I products per unit. What always happened the past is that F&I sales and unit sales went up and down in lock step. How can dealers break that lock step?

You can do menu selling. You can do the 100 percent rule [presenting all F&I products to all customers all of the time], that's one of the most effective methods. You can also use an online selling tool.

We also provide additional tools for sales on the back end. You can sell products like a month-to-month service contract in the service lane. We started a service-drive program with Volvo.

After all, for every one new car you sell, something like six come in the back shop for service.