This past March, Agent Summit IV saw the first of a new wave of ancillary products come to market – Warranty Alternatives’ Universal Repair Coverage program created curiosity and a buzz about the next generation of F&I products for pre-owned vehicles.

While vehicle service contracts and GAP programs dominate the used car product market, a majority of dealership customers (60% on average) still say “no,” or find that their car simply won’t qualify for a service contract. Instead, tire and wheel, key protection, environmental protection, windshield treatments and the like have traditionally been offered as an alternate sale opportunity for the dealership – often at a more affordable consumer price point. But those products have been most effective only when sold in combination with a service contract. The fact remains… there is no easy F&I down-sell or fall back offer to a declined vehicle service contract. Until now.

All of that is changing as insurance companies and traditional product administrators develop the next wave of products to accommodate a dramatically changing consumer and regulatory marketplace. Hybrid products are emerging that share qualities of both service contracts and car club membership programs, but are in fact neither from a legal or regulatory perspective. These more affordable hybrid products, based on consumer reimbursement rather than traditional claims administration models, offer consumers a blend of automobile expense protection benefits at a much more attractive price point. While maintaining an element of mechanical breakdown protection, the blend includes additional high perceived value benefits that consumers relate to – like collision and comprehensive insurance deductible protection, rental car benefits, and emergency roadside and trip interruption benefits.

Increasing Consumer Sophistication

It's old news that the Internet has produced more sophisticated and more prepared shoppers for every type of product, and especially those at the dealership – from the car itself to the paint protection. Consumers are much more capable of accurately judging value – and that’s good news for those offering products at a fair price. It's been bad news for a whole generation of ancillary products whose sales performance has depended on an entire industry of “overcoming objections” training programs, desk top sales props and specialized word tracks. Selling products with value shouldn't be that much work - consumers seldom object to products and services that make sense and provide good value! And that’s where the contractual simplicity and perceived high value of these new hybrid products comes in.

Contractual Simplicity & No Claims Administration

Warranty Alternatives' Universal Repair Coverage offers a plain language contract that reads more like a benefit guide than a traditional vehicle service contract commonly chock-full of legal terminology, fine print and exclusions. Simple-to-understand benefits combined with a lack of VSC-style claims administration dramatically reduces the amount of elaborate contract language.   Reimbursement programs work by providing the customer with complete freedom of choice of service providers and the no-hassle experience of a direct cash reimbursement for services they have required. There are no claim negotiations with service centers or benefit providers over cost of labor or replacement parts. There are no inspections of breakdowns or second-guessing of diagnostics, and none of the headaches commonly created by failed customer expectations about traditional F&I product performance.

New Product Industry Compliance Concerns

The way products are presented and sold to consumers is under scrutiny by federal regulators like the CFPB and by consumer protection watch groups like the Center for Responsible Lending. The F&I industry is carefully monitoring developments in product regulation. Many F&I industry and legal experts agree that product value, who buys, who doesn’t, and how much they pay are all data points for regulators and consumer protection groups to dig into. The bottom line is that F&I professionals must ensure that the customer expectations they create at the time of sale are met or exceeded by product performance. That can only happen with a transparent presentation of both benefits as well as limitations, and a simple explanation of how benefits are actually administered by the product company. This makes the timing especially right for the simplicity and consumer-friendly administration of the next generation of products like Universal Repair Coverage.