There are a lot of reinsurance structures available to dealerships, and two common structures are CFC and NCFC. Below are benefits and Drawbacks to these structures as well as some additional information about how to determine which structure would be most beneficial for your dealership.
CFC (Cost of Funds Cover)
Benefits:
- Offers more flexibility in terms of the types of claims that can be reinsured.
- Can result in lower costs for the primary insurer as they are able to transfer the cost of funds to the reinsurer.
Drawbacks:
- Can be more complicated to administer as the cost of funds must be tracked and allocated to specific claims.
- The primary insurer bears more of the investment risk as they are responsible for the cost of funds.
NCFC (No-Cost of Funds Cover)
Benefits:
- Simplifies administration as there is no need to track and allocate the cost of funds.
- Reduces investment risk for the primary insurer as the reinsurer takes on the cost of funds.
Drawbacks:
- Limits the types of claims that can be reinsured as the cost of funds must be factored into the calculation of the claim.
- Can result in higher costs for the primary insurer as they must bear the cost of funds for the claims that are not covered by the reinsurance.
When determining whether to use CFC or NCFC for automotive reinsurance, dealerships should consider the following criteria:
- Claims handling processes: The claims handling processes and the level of sophistication of the dealership’s insurance operation should be evaluated to determine if a CFC or NCFC structure is more appropriate.
- Cost: The cost of reinsurance should be evaluated and compared between the two structures to determine the best option for the dealership.
- Risk tolerance: The dealership’s risk tolerance should be considered to determine if they are willing to bear the cost of funds or transfer that risk to the reinsurer.
- Claims experience: The dealership’s past claims experience should be analyzed to determine if they have a history of high-cost claims that would benefit from the transfer of the cost of funds to the reinsurer.
- Reinsurance capacity: The availability of reinsurance capacity and the terms offered by reinsurers for both CFC and NCFC structures should be evaluated to determine the best option for the dealership.
- Financial position: The dealership’s current financial position and future goals should be evaluated to determine if they have the financial resources to bear the cost of funds or if they would prefer to transfer that risk to the reinsurer.
It’s important to consult with a reinsurance specialist and conduct a comprehensive evaluation to determine the best option for the dealership’s specific needs.
If you’re considering a CFC or NCFC structure, here are some benefits that come from working with the reinsurance experts at F&I Direct:
- Cost savings: We have the lowest admin fee in the industry, which results in instant cost reduction for reinsurance, and more money to your bottom line.
- Flexibility: We can accommodate your dealership’s specific needs.
- Claims handling: We will build a comprehensive claims handling process to best fit your dealership.
- Customization: We offer customized solutions that will accommodate your dealership’s specific needs and goals.
- Ease of use: Working with F&I Direct simplifies the insurance process for your dealership.
- Expertise: We are disrupting the automotive reinsurance industry by providing our dealers with transparency for the first time since F&I became a source of income for dealerships, and we are committed to providing exceptional service.
- Guaranteed results: We know that we can find an extra $100,000 dollars for your store, or we will pay you $10,000!
Feel free to contact us today!
