In the world of auto sales and lending, verifying a customer’s auto insurance is an essential step. However, for many dealerships, this routine task can impose a surprisingly large burden, draining resources and eating into profits over time.
Have you ever stopped to consider the true cost of your current verification process? Let’s break down the expenses that might be eating into your profits.
Why Dealerships Verify Auto Insurance
Auto insurance verification has become a standard requirement in the car sales process. For many dealerships, this just proves that they’ve done their due diligence before handing over keys to a driver. It builds trust with the community and protects them from any liability in the case of a catastrophe, enabling them to hand over title and complete the sale or lease.
However, for businesses that finance or lease out vehicles, verification is key to protecting their assets. Without checking the customers coverage before they drive off the lot, you run the risk of losing your asset to an uncovered accident. That’s why it’s essential to thoroughly verify insurance at the time of sale and monitor the policy thereafter in order to mitigate risk.
How Much Does Your Dealership’s Verification Process Cost?
To calculate the direct cost of insurance verification on your dealership, let’s focus on labor. This is mainly determined by two factors:
- Time per verification: On average, a manual verification can take anywhere from 15 to 30 minutes per customer. This includes the time the customer spends retrieving their documents, the F&I agent’s phone call to the insurance carrier, and document reviews
- Employee hourly rate: Consider the hourly wage of the staff member performing these verifications. If you’re paying $25 per hour and each verification takes 15 minutes, that’s about $6.25 per verification in labor costs alone.
Note: Consider that these are the operating costs once your engine is already running. Before that, many dealerships incur initial startup expenses, including employee training and process implementation.
Cost of Auto Insurance Verification
Hidden Costs of Manual Insurance Verification
The price of labor can add up quickly, but it’s just the tip of the iceberg. Manual verification processes also come with several hidden costs that can significantly impact your bottom line.
Human error
Any manual process introduces the potential for human error, from miscommunication over the phone to data input typos. Some of the mistakes can end up incurring major expenses. For instance, misreading policy details could mean approving a driver with insufficient coverage, which could impose challenges in the event of an accident.
Some businesses have even faced lawsuits due to their faulty insurance monitoring processes. Recently, National General was sued by the Department of Justice (DOJ) over a complaint that the insurance company force-placed collateral protection insurance on hundreds of thousands of consumers who met the required policy minimums. Mistakes like this can also lead to inflated levels of delinquencies and defaults as customers struggle to fulfill additional financial burdens.
Opportunity cost
Every minute spent on manual insurance verification isn’t just tedious for your team; it’s also time that they’re not spending on other value-added tasks. When it comes to your F&I and sales reps, that often includes creating new business, building customer relationships, and generating incremental revenue through transaction add-ons.
In other words, to get an idea of the cost of insurance verification, think about what your team would be able to do with an additional 15-30 minutes for each transaction.
FTC penalties
One overlooked consideration of manually verifying insurance is the impact on your company’s compliance. As of June 2023, the Federal Trade Commission (FTC) enforced the Revised Safeguards Rule, which imposes new standards on how to handle consumers’ personal identifiable information (PII).
The traditional verification process introduces many opportunities for data exposure issues, from copying customers’ policy documents or taking pictures of their license to exchanging personal information over the phone. In addition to posing the risk of a disastrous data breach, this can also incur fines from the FTC up to $51,744 per violation.
Automate Your Insurance Verification and Save
When you add up the direct labor costs, the potential losses from errors, the opportunity costs, and the risk of non-compliance penalties, the true cost of manual insurance verification is staggering. It’s not just about the time and money spent on the process itself, but also about the potential risks and missed opportunities.
Investing in an automated insurance verification solution might seem like an additional expense, but when you consider what you’re paying now, you’re likely to see significant savings.
Ready to get started? Learn more about how CheckMy Driver can help you verify insurance in as little as 30 seconds per transaction.
