Reinsurance: The Ultimate Key Manager Retention Tool

As a former dealer who owned and ran multiple dealerships, I know firsthand that your most important resource for consistent profits is your key managers. Turnover — any amount of turnover — at the highest levels of your sales, F&I, and service departments is devastating to your business, your employees, and your loyal customers. 

As a former dealer and longtime dealer consultant, I have found no better tool for keeping key managers on the payroll and laser-focused on your success. 

It literally takes decades to build a strong management team. Retaining each successful key manager must be of paramount importance. Sometimes monthly and annual bonuses and extra contributions to 401(k) plans are not enough to keep a manager from leaving or being lured away for more money, status, or promises of ownership in another dealer’s enterprise.  

Bottom line: We have to be creative and think outside the box to hold on to key managers. Giving them actual ownership of a reinsurance company is a proven solution that will pay big dividends for everyone involved. 

Let’s discuss the who, when, and how of reinsurance company ownership for proven key managers. 

Who Should Get Reinsurance Company Ownership? 

Any manager whose absence would hurt your profits and ability to grow should be considered for reinsurance company ownership. About 40-50% of the dealers I work with have at least one key manager on a reinsurance program, and many of them have more than one. I expect those numbers to grow as the concept continues to catch on and I continue to strongly suggest and recommend it.

Candidates for key manager reinsurance companies include: 

• General managers
• F&I directors
• Service or fixed ops directors
• CFOs, office managers, or controllers

Larger operations may also consider extending reinsurance company ownership to general sales managers and service managers. Of course, their title is not nearly as important as their significance to the dealership and your long-term plans. 

When Should I Pull the Trigger? 

Trust your instincts. If you know a key manager is a solid person you want and need to be around for the long haul, it may be time to make a move. 

When I mention this prospect to dealers, we look at people who: 

• Have built a good department over the long term with proven results
• Have been with the dealership for at least three to five years
• Have indicated they want to continue to work and grow long-term with you

That’s a proactive scenario. One example of a reactive scenario is forming a reinsurance company for a GM who is looking to buy their own store — likely with the help of a hefty business loan, a multilateral partnership, or some combination. And good for them. But there may be a better way. 

Form a reinsurance company for that GM now, while they’re still planning and saving, and ask for a five-year commitment. For as long as they stay, and the better they perform, the more their new financial asset will grow. Your provider will work with you to create a sensible vesting plan.

If they have $500,000 in earnings after five years, they may decide to stay the course. If they still want to strike out on their own, they will be in a far more advantageous position. And they will have had ample time to train their replacement and will leave their department or dealer in the best possible shape. Sharing the wealth kept them with you!

I should note I do not advise dealers to dangle reinsurance company ownership as a benefit for new hires. If anything, I would suggest offering it as an incentive triggered after a certain number of years or by hitting certain benchmarks. Either way, they have to earn it. 

How Are Key Manager Reinsurance Companies Structured?

There are two ways to get key managers on a reinsurance program: Give them 100% ownership in a new reinsurance company or make them a partner in the dealer’s reinsurance company. 

100% ownership: The key manager gets a new reinsurance company of their own, funded by diverting some percentage of the premium that currently goes the dealer’s reinsurance company. 

In a common example, the dealer’s reinsurance company gets 80% of the premium, the key manager’s reinsurance company gets 20%, and the cost of claims is shared accordingly. The dealer may choose to increase the key manager’s percentage as an additional incentive for a longer tenure or higher benchmarks. 

If the key manager quits or is terminated, the flow of premium to their reinsurance company simply stops. But they leave with their company, subject to their vesting agreement. 

Meanwhile, the manager can borrow or take dividends from their own reinsurance company without involving the dealer, and the dealer can continue to manage their own reinsurance company as they see fit. It really is owned by the manager and they recognize it as true ownership.

Partnership: Alternatively, a dealer can make a key manager a partner in the dealer’s reinsurance company. They get a share of the ownership and earnings, which could be divided 90/10, 80/20, 60/40, or whatever split makes sense for the dealer. 

One advantage to the partnership option is the savings. Depending on the structure, a reinsurance company will cost several thousand dollars in annual fees for tax returns and charter renewals. Fewer companies, fewer fees. 

The disadvantage is obvious: Neither party has 100% ownership, so disagreements are possible, if not inevitable. And if the key manager leaves the dealership, the partnership has to be unwound. It can be done, but it can get sticky, particularly when the process is not clearly defined upfront. 

All of this raises a valid question: Why should a dealer sacrifice any amount of profit or ownership to a person who, trusted though they may be, is not a family member and could conceivably still depart at any time? 

The answer is longevity, performance, and long-term vision and retention. 

First, your key managers have a hell of a lot to do with the success of your dealership and your reinsurance company. Those who are earning above and beyond competitive salaries for exceptional work are far less likely to even be tempted by another opportunity. They will feel empowered. They will feel in control. And they will be right. After all, this makes them owners.

Second, and no less important, every dealer knows the needle moves faster when everyone is pulling in the same direction. Imagine how much your performance would improve if your department heads all had a personal financial stake! 

Sales would tee up F&I on every deal. F&I would deliver a flawless presentation to every customer, maximizing sales and minimizing chargebacks. Service would be a well-oiled machine, handling every claim and repair with the bottom line in mind. 

It’s happening right now, in dealerships across the country. I urge you to try it yourself. As a former dealer and longtime dealer consultant, I have found no better tool for keeping key managers on the payroll and laser-focused on your success. 

Case Study: Skin in the Game

As a general manager and partner in a family-owned auto group, Brad F. got the opportunity to own a reinsurance company when the group switched providers. He has seen the difference ownership among key managers can make. 

“Those stores where the owner-operator has a piece of the pie perform a lot better than those that don’t,” he says. “It’s a great benefit, a fantastic deal, and it greatly benefits the majority owners as well.” 

At Brad’s dealership, product sales and customer satisfaction are trending up while turnover trends down. 

“If you owned a football team, would you not incentivize your players and coaches for winning the Super Bowl?” he asks. “If you want top performers, you have to give them some skin in the game.” 

Case Study: From GM to Dealer 

Geoff Y. worked for the same dealership for 20 years, rising to the rank of general manager and earning a share of the store’s success with the formation of his own reinsurance company. 

“I questioned it initially. I didn’t know what they were talking about,” he recalls. “Then we sat down and analyzed the numbers. And I realized not only would I have the opportunity to make more money, I would have the ability to make decisions to the customer’s benefit.” 

Geoff would eventually leverage his earnings to become a dealership owner himself. 

“Without the reinsurance money, we wouldn’t have been able to buy the store,” he says, noting that his own key managers are now reinsurance company owners too. “Our finance director is involved. Our service manager is involved. That’s the blueprint we use.”

Case Study: The Ultimate Goal 

When Rod C.’s dealer offered him a share of his dealership’s underwriting profits, the longtime general manager was blown away. 

“When you’re invited to have ownership in anything, whether the dealership itself or a warranty company, it makes you feel more valued. They’re thinking long-term, about you and the company,” he says. “And selfishly, without a doubt, because I’m a partner in this company, I watch his money probably better than I do my own.” 

Rod says that sitting in on reinsurance cession meetings gave him a better understanding of how profits are earned and how incremental changes can make a big difference. 

“I have told dealers the only reason you’re not doing this is because you don’t understand it.”

Graye Wolfe is a former 10-store, 14-franchise dealer from Boise, Idaho, and senior managing director for the Western U.S. for Portfolio, a national provider of reinsurance programs and F&I products, the founder of Performance Improvement Concepts, and a graduate of Northwood University and the NADA Dealer Candidate Academy.