BMW Financial Services NA Inc. recently announced a new 'affinity marketing' relationship with Chubb Group of Insurance Cos. of Warren, N.J., a specialist in high-end insurance.
If the link yields a profitable business, Chubb will share its profits with BMW Financial Services, said Stefan Krause, CEO of BMW Financial Services' Americas region.
Dealers also will get a cut. BMW and Chubb are trying to structure payoffs so BMW and Land Rover dealerships that refer customers to Chubb will not need a license to sell insurance.
Chubb also will pitch other policies to BMW customers, such as homeowners insurance. Chubb will offer to cover other vehicles in the household, and it will even provide BMW customers with quotes from other insurance companies, to keep the program competitive in states where Chubb rates are relatively high.
All that represents a closer relationship than BMW's earlier deal, with TIG Insurance Co. of Irving, Texas.
BMW started referring its customers to TIG in 1996. In return, TIG offered BMW customers rates that were 30 percent lower on average than those of other carriers. However, TIG dropped the BMW relationship after TIG was purchased by Fairfax Financial Holdings Ltd. of Canada this year.
BMW quietly launched the Chubb program this summer. First to be approached were former TIG customers, as their policies expired.
Ultimately, BMW would like to see more licensed insurance agents at dealerships. But historically, few dealers have made that investment in time, money and personnel.
Krause, 36, joined BMW AG in 1987 as a financial analyst. He has worked in the United States for six years. Krause is a native of Bogota, Colombia, where his father was a Volkswagen distributor. He joked that he considers himself, 'one-third Colombian, one-third German and one-third none of both.'
Staff Reporter Jim Henry interviewed Krause at BMW's U.S. headquarters in Woodcliff Lake, N.J. The interview took place Sept. 17, the day after Hurricane Floyd tore up the East Coast. Here are edited excerpts:
Why isn't it more common to offer insurance at the point of sale - that is, at the dealership?
One of the difficulties in making it available at the point of sale is that - and rightfully so - you want somebody selling insurance who can properly represent the product to the consumer and who is trained to sell the consumer a product in proportion to the customer's needs.
Is licensing the main issue?
We want to make it as easy as possible for our dealers to offer insurance, but we must also take care that they understand that insurance is very personal; it is not something where one size fits all.
Instead of doing it the Ford way, where Ford has only one partner (the Hartford), we have found a partner who will offer not only the BMW-Chubb product but offer the customer several choices, ranging from a package oriented to the customer who wants the ultimate peace of mind, to somebody who just wants the minimum coverage, the cheapest they can find.
Insurance is a complex financial services product. It is easier with a car to touch and feel it and see what you're getting. With insurance, it is harder for consumers to comprehend what they are getting into.
Was TIG satisfactory? Was that relationship solely about price?
The point we were trying to make with that program was to offer the customer the best cost of ownership possible, and insurance is a big component of the cost of an automobile. From our point of view, we want to know whether our customer is being charged fair rates.
Also, TIG made the selection process easier. It gave our customer a 'bid,' for others to bid against. It gave them a starting point. They had a realistic price to compare against. Our concern was that no one select not to buy a BMW for that reason.
TIG was very successful in that it started out in only a few states and grew quite rapidly. We were happy with them as partners.
Did you share in profits from the TIG relationship?
BMW did not financially participate.
How far can this trend go, toward becoming a 'one-stop' shop?
The trend is definitely to use the captive to provide more services. Right now, all those services are unbundled, but in the future you will see them getting bundled together.
You'll end with something like your monthly car cost will be $700 a month, including maintenance, a lease, the right to a rental car, insurance, all in one monthly payment.
If you look at the automotive business long term, more and more services are part of the value we deliver to customers. We didn't used to deliver financial services. But I would be willing to guess in the future, it (insurance) will become part of the general offering.
My father was a VW distributor in Colombia, and I remember him telling about coming home from a meeting, where VW had asked all the dealers to become involved in the service business.
In those days, even if somebody broke down on their way out the driveway, once the customer left the driveway, he was no longer the dealership's responsibility. My father's reaction was, 'We're in the sales business, not the service business!'