A used-vehicle retailer in Texas is offering a special auto insurance option for subprime customers. Franchised dealers contemplating bringing auto insurance in-house should take note of those that are using data tools to keep offerings affordable.
Many dealerships and auto lenders are working to make vehicles affordable for consumers on the low end of the credit spectrum. Franchised dealerships who have developed subprime expertise through specialized finance departments are committed to helping credit-thin or credit-invisible customers get into vehicles they can afford. Auto lenders are using alternative credit data and risk assessment tools to better understand credit-thin or low-income borrowers.
Using similar techniques, the Tricolor Auto Group in Dallas is leaning on an affiliate company to better predict the behavior of potential borrowers to lower fees for customers.
Daniel Chu, CEO of Tricolor, said in a statement that auto insurance rates for customers with limited incomes or spotty credit histories are substantially higher than for more mainstream credit consumers. That's because insurance companies tend to offset the risk of cancellation by charging high origination fees, according to the company.
Tricolor Insurance Agency plans to eliminate those fees using data-driven underwriting models. The insurance company currently markets its services exclusively to Tricolor Auto Group's customers at 28 stores in Texas. Tricolor Insurance Agency acts in the capacity of an agent, and will not underwrite the policies, according to the company.
Auto dealers stand to gain when customers aren't overpaying for car insurance. Customers factor the cost of auto insurance into their overall vehicle ownership costs, and budget accordingly.
Franchised dealers might benefit from adopting similar practices to Tricolor in connecting consumers to affordable auto insurance.