Jim, reinsurance can sometimes be confusing
for people. Even people in our audience have questions about it. Tell us, just very simply,
what is reinsurance, what is the thought behind it, why is it of value?
Well, I talked about reinsurance at a policy level a little while ago. But basically, what
it is, is a sophisticated profit sharing program for a car dealer to get into. If a car dealer
wanted to get into a less sophisticated program, they could just try to participate in the
profits, or lower their premiums as low as they could. Which puts a lot of pressure on
the insurance companies. There’s a lot of people out there that will try to get the
lowest premiums they can, which puts a lot of pressure on the insurance company, and
it could end up hurting the car dealer. In our case, we don’t have so much pressure lowering
the premiums, because the dealer, or the agent, or other type of producer, is able to participate
in the profits. So therefore, reinsurance in its basic form, the way we do it, is just
a sophisticated profit sharing program for the producer of insurance to participate in.
And there’s advantages to having an insurance company. It generates a lot of assets. You
get to set up reserves. There’s just a myriad of advantages to a reinsurance company that
allows a dealer to maximize his profits in today’s environment.