SUMMITIVE SOLUTIONS

Case Study 3

Revamping Auto Service Contracts for a Leading F&I TPA

Client Overview

The client is an established Third-Party Administrator (TPA) specializing in Finance & Insurance (F&I) products for automotive dealers. They administer auto service contracts across a diverse nationwide dealer network but faced challenges in maintaining competitive pricing and desired profitability amid evolving market expectations.

Business Challenge

• Stagnant Product Competitiveness: Existing auto service contract structures lagged behind market leaders in both coverage depth and pricing innovation. • Eroding Profit Margins: Increasing claims severity and outdated rating factors made it difficult to sustain target profit margins. • Changing Market Dynamics: New entrants and direct-to-consumer providers exerted downward pressure on prices, while customers demanded greater transparency and tailored coverage.

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Our Approach

1. Comprehensive Data Review and Analysis

• Assessed several years of the client’s detailed claims data for trends in frequency and severity by key segments (e.g., vehicle type, age, mileage).

• Evaluated the performance of legacy rating structures against actual loss development and profitability benchmarks.

• Identified outliers—vehicles and plans with high loss ratios or insufficient premium adequacy.

2. Market Research and Competitive Benchmarking

• Conducted a landscape analysis of current auto service contract products—benchmarking top competitors on features, coverage, and price points.

• Reviewed consumer expectations, reputation metrics, and buying trends to inform where the client’s offering could stand out.

3. Development of Enhanced Rating Factors and Structures

• Created a new set of risk-based rating variables, including:

• Vehicle reliability indices (by make/model/year)

• Adjusted pricing tiers for higher-mileage and older vehicles

• Geographic factors reflecting repair cost differentials

• Claims elimination periods and updated term limits to balance risk and price

• Introduced a modular product structure:

• Tiered coverage options (basic, comprehensive, premium) to appeal to a broader audience and maximize upsell

• Optional add-on benefits, such as roadside assistance and rental reimbursement, linked to data-driven customer preference insights

• Leveraged predictive analytics to simulate the financial impact of each proposed factor and pricing adjustment on loss ratios and overall profitability.

4. Implementation and Monitoring Framework

• Rolled out new rate structures and coverage options to a pilot subset of the dealer network.

• Deployed dashboards for continuous monitoring of claims, quote conversion rates, and plan profitability by segment.

The Results

  • Improved Profitability: Aligning premium with risk via granular rating factors led to more predictable results and higher contract profitability.
  • Enhanced Competitiveness: The new product portfolio allowed dealers to better match coverage and pricing to varied customer needs, supporting market share growth.
  • Actionable Insights: Ongoing data review process enables agile responses to market shifts and claims behavior.

Key Takeaways

  1. Thorough data analysis and market research are crucial for identifying profitable and competitive gaps in F&I products.
  2. Innovative, risk-based rating factors help manage adverse selection and improve rate adequacy for auto service contracts.
  3. Tiered product structures and optional benefits increase customer satisfaction and dealership sales opportunities while supporting profitability.
  4. By guiding this F&I TPA through a holistic contract redesign, we helped them achieve sustained growth, improved market relevance, and enhanced profitability in a highly competitive space.