Dealers can use profit participation programs to gain more control over their F&I income and turn it into long-term financial growth. However, many dealers still miss out on these benefits because they don’t fully understand the options available to them. In this episode of Training Camp, Ryan Hanlon, reinsurance expert and chief sales officer at Portfolio, outlines how dealers can take full control of their F&I profit through structured reinsurance programs.
"I'm passionate about reinsurance... It was sort of that simple philosophy of serving dealers, helping dealers and their families create generational wealth, using reinsurance companies as a vehicle."
Reinsurance programs began after a tax law was passed in 1986, which allowed dealers to establish small insurance companies to retain profits from services such as vehicle service contracts. In the early years, many companies offered programs that didn’t give dealers full control, making it harder to build long-term value. Today, reinsurance programs are more dealer-friendly and offer more ways to keep profits in-house.
There are several kinds of programs dealers can choose from:
Direct program
The most basic is a direct program, where a dealer sells a contract, gets paid, and walks away. It’s simple, but the dealer doesn’t share in any future profits.
Retro plan
A step up from the direct program is a retro plan, where the dealer still doesn’t own the program but can earn some of the leftover profit, depending on how the contracts perform.
Self-insured plan
A self-insured plan gives the dealer full control of the money but comes with added risks. It creates a liability on the balance sheet and could hurt the store’s value when it’s time to sell. There are also extra taxes that dealers would need to handle directly.
ARC
The most popular option today is the ARC (Affiliated Reinsurance Company). This structure allows dealers to retain up to $2.85 million in premiums per year in a special insurance company. It’s backed by years of tax rules and legal protection. Portfolio, Hanlon says, is the only company in the industry to have IRS documentation proving the structure is valid.
DOWCs
DOWCs (Dealer Owned Warranty Companies) are another option. They became more common around 2016. These can provide dealers with early tax savings, but they have limitations and require additional paperwork and planning. Hanlon points to newer hybrid models, such as DOWC RE or Reinsurance X, which combine the benefits of both DOWCs and ARCs. These give dealers more flexibility, easier compliance with state rules, and long-term tax advantages.
NCFCs
Some older programs, like NCFCs (Non-Controlled Foreign Corporations), aren’t used much anymore. Tax law changes made them less attractive, and many dealers are switching to newer, more flexible models.
Franchise dealers not participating in a profit-sharing program are likely losing money. These programs not only help dealers earn more today but also set them up for long-term success and even estate planning.
