Vince Beretta has a message for Canada’s F&I market.
The Insurance Insight and WALKAWAY executive chairman wants dealers and providers to know business office products should be judged and considered based on consumer quality before gross profit. And for those who fail to heed the advice, the consequences, namely increased scrutiny from regulators, could wind up affecting everyone.
Beretta helped co-found WALKAWAY Canada in 1999. The ensuing years has seen the organization develop into one of the great Canadian automotive success stories. The company has built a global enterprise that now protects billions of dollars in automotive debt through a broad product range.
He recently sat down with Canadian AutoWorld to talk about quality F&I products, consumer debt and the perils of extended-term auto loans.
Canadian AutoWorld: How was 2017 for Insurance Insight/WALKAWAY?
Vince Beretta: We out-paced the growth of the industry last year and continue to grow in our fiscal 2018. We’re expanding both in our product line and nationally in terms of a broader reach. We also continue to have an active business in the U.S. and are hopefully embarking sometime this year on seeing our first book of business take off in the U.K.
While it hasn’t received much attention here, F&I products have been heavily scrutinized in Australia and the U.K. in recent years with insurers and dealers having to repay millions in premium. What is going on?
It is a bit complicated and difficult to encapsulate, but essentially, regulators in both markets ordered insurers to refund massive amounts of premium to consumers who purchased F&I products.
Suppliers were providing dealers add-on insurance products and paying dealers uncapped commissions on policies that, in some cases, were of little or no value to consumers.
In other cases, customers were charged thousands of dollars for products that cost hundreds.
For example, Australian regulators recently ordered the repayment of $106 million of GAP premium for poor selling practices. Companies didn’t cap profit limits, were selling to consumers who didn’t need it or the product was tilted too much in the favour of the insurer or dealer and product limitations were either misrepresented of not properly disclosed.
The same thing happened with credit insurance in the U.K. known as payment protection insurance or PPI. Insurers there are close to £50 billion refunded to consumers.
PPI was sold on all sorts of things including cars, appliances, electronics, really anything that came with a payment plan, but most of the refunds were associated to car loans.
One hundred per cent of the premium going back years was refunded in full and it spawned a service industry that assisted consumers obtaining these refunds and the travel industry boomed as a result.
Is that same sort of fallout possible in Canada?
Absolutely. Regulators are like any other industry. They have their own conferences where market information is shared and communicated. It could happen in Canada, in fact, we are already starting to see increased scrutiny with notices given to car dealers in some provinces related to GAP insurance. We are also seeing F&I suppliers allow un-capped commissions on products and I think it’s irresponsible behaviour.
All the regulators are aware of what’s happening. I don’t know if we’ll see an environment develop where F&I managers are going to have to be licensed anytime soon, but I wouldn’t say it is an impossibility.
I think we can avoid aggressive oversight with responsible self-management in the industry by capping prices charged to customers and for dealers to focus on product quality for their consumer.
How does the Canadian automotive F&I industry avoid getting caught under the regulatory spotlight?
With shrinking margins in the new car business, F&I plays a very important role in the profitability of a dealership. What I would hope to see is business managers take selling higher quality products versus a greater quantity of programs that come with higher margins but questionable quality.
The industry risks raising flags when protection products are not transparent and consumer-centric. This is particularly true given current household and personal debt levels. If the insurance a customer purchased doesn’t perform and protect them in the way they thought it would and a their financial world is turned upside down by an unforeseen repair bill, or a denied health claim that’s when the complaints will start to flow. When complaints rise, regulators start to take a closer look at what’s happening.
How do you identify a quality product?
There are many options for dealers today and the real difference comes in the minutia of the fine print. There are some products designed to pay what I would say is deep, while other look for ways out on technicalities.
Take, for example, cause and effect as it is related to mechanical breakdown.
If the consumer has a breakdown of a covered part that affects the performance of a non-covered part, quality protection plans would mean cause and effect is covered. Some products won’t cover that non-covered part simply because it is not the problem, even though there is a direct correlation between the two.
At the end of the day, a customer who paid for protection would expect that kind of thing to be covered, when it isn’t, that customer dissatisfaction hurts everyone.
What is your message for dealers related to what they sell in their F&I offices?
I would want them to learn exactly what they are selling, obtain detailed product comparisons of what’s available in the market and have a really good understanding how their F&I managers are selling to their customers.
I would hazard to guess that there’s not one dealer that has ever read the terms and conditions of the products offered at their store or obtained a detailed comparison of terms and conditions available in the market; the devil is in the details.
I know that level of detail is not really how a dealer make choices, but it results in a lack of understanding what is being sold from a quality perspective. They only understand it from a profit perspective.
We regularly read about the excessive debt levels Canadians are carrying. As someone in the debt protection business, what are your expectations for 2018 and beyond?
There was a recent survey done by MNP Ltd., a corporate and consumer insolvency firm, that revealed over 30 per cent of Canadians are worried about bankruptcy.
We’ve had back-to-back interest rate hikes and there are calls from finance experts for people to start paying off debt. Given all of that, I think we’ll see people pull back a bit and find some way to manage their debt.
I just don’t see where consumers will continue to spend that kind of money on cars. Half of our population is $200 away from failing to meet their monthly commitments. We see average terms loans of 74 months and growing amounts of negative equity being rolled into new purchases. I just can’t see this going on. It has to stop somewhere.
Do you think we’ll see a spike in bankruptcies this year?
I can’t say for certain. But how do you pay off $1.71 with $1? How do you do it? You can carry it for a while and use home equity and credit, but it has to hit a wall.
What’s next for automotive? Are 108-month terms on the horizon because we have to meet the payment demand of the consumer and role their negative equity in?
How do I take the Tucson owner who has a finance contract of 96 months but wants to get out after 48 months and keep his payment the same?
There are a lot of people under a lot of financial stress. I don’t know if we’ll see a run of personal bankruptcies as the market continues to change, but something will be coming.
Let’s end on a cheerier note. What can dealers and their business managers do to help mitigate financial burdens for customers?
I see debt protection and a high quality product line as being very important features of the consumer experience. Every dealer should be confident in what they sell and the protections it offers. That confidence will shine through in a sales presentation.
Of course, I think this industry needs to be more informed and concerned about the customer’s financial well being. Dealers and business managers need to be offering guidance to look at their overall financial picture and find a vehicle that fits that reality. We can balance the drive for profit with the idea that we are all here to help the consumer.