The F&I protection product market is complex and uncoordinated, experts say

NASHVILLE — Between lenders, regulators, dealership finance managers, product providers and more, there are many cooks in the finance and insurance add-on product kitchen. But their lack of collaboration is straining the market.

F&I ancillary products include vehicle service contracts, protection products, maintenance plans and more. But conflicting processes in the market are a major challenge, according to a panel on maximizing ancillary product results at the 2024 Auto Finance Summit East conference this month.

Amid increased regulatory scrutiny and rising product cancellations, the complex market needs technology that makes cooperation easier, said moderator Brian Reed, founder of automotive technology consultant Digital Auto Advisors.

"Historically, lenders and F&I providers have never worked together to solve each other's needs," Reed said. "They work in isolation. There are challenges that the lenders have and there are challenges that F&I managers have, but they can't solve them by themselves."

Growth in product cancellations is costing many in the market, said panelist Sean Murphy, vice president of finance at Earnhardt Auto Group in Chandler, Ariz.

That is primarily because the procedure to process cancellations is not standardized.

The dealership group spends roughly 500,000 staff hours a year processing cancellation requests, he said.

Meanwhile, interest rates are still high and monthly payments continue to be on the rise. At the end of 2023, consumers paid on average $18 more a month for a loan than they did the previous year. High monthly payments can make it tricky for F&I managers to sell add-on products.

The industry also needs to work together toward the goal of cutting the costs of compliance, said panelist Tom Keepers, executive director of GAP Alliance, the Motor Vehicle Protection Products Association and Service Contract Industry Council.

"Starting at least with lenders and providers, we want to bring them together to identify and start solving some of the shared issues," he said.

Greater regulation means lenders are taking a hard look at dealership marketing materials, sales practices and forms, Keepers said. To avoid potentially costly lawsuits and settlements, lenders are looking to make sure all processes in F&I product sales are compliant.

But that can create another major friction point between lenders and dealers: When lenders change long-standing forms, that is extremely disruptive to dealership processes, Murphy said.

And "that has been a relatively destructive thing in our lender relationships," he said.

A potential solution could be universal forms for certain products, Keepers said. An ideal candidate would be GAP protection, he said. GAP pays the difference between a vehicle owner's loan balance and the cash value of their car if it is totaled.

Compliance is top of mind for dealerships and standardized processes would make it much easier to carry out changes, Murphy said.

"We spend so much money on advertising and being a good part of our community," he said. Being noncompliant "is not the way we want to go."