This post was created with the help of Tom Kline, a risk mitigation expert and compliance consultant. Tom is a third generation “car guy” and former dealership owner with more than thirty years of experience. Outside of interviews and speaking events, he also shares his expertise in his recent book, Tuck The Octopus: A Better Vantage Point For Dealership Risk And Compliance.
For most dealers, checking customers’ insurance is a tedious step at the end of a sale. But what seems like a simple administrative task can become a major liability when corners get cut.
Let’s get into where many dealers mess up insurance verifications, how it costs them, and how you can take action to improve your process.
How Improving Insurance Verification Could Save Your Business
In car dealerships, insurance verification can be seen as an obstacle to finalizing a deal. More than anything, many see it as simply a legal obligation. Because the majority of states require drivers to have liability insurance, auto dealers complete verification to conduct their due diligence and avoid incurring penalties from selling to uninsured drivers.
But in some deals, insufficient verification processes can expose dealers to more liabilities.
Risk mitigation and compliance consultant Tom Kline shared his experience when it comes to financed deals. “When you have indirect lending relationships, and the lender inherits a contract that the customer has an accident in the first 30 days, the lender is always going to come back to the dealer and ask about the insurance verification,” he said. “And then you may be taking a loss and buying back that contract.”
Tom is the founder of Better Vantage Point, a specialty consulting firm focused on protecting and safeguarding dealers from risk. As a consultant, he pulls on his decades of experience in the industry to prevent his clients from making shortsighted decisions.
“I want to make sure dealers don’t get a case of what I call a case of the ‘yets,’ which is, it hasn’t happened to me yet, so it’s not going to happen,” Tom said. “It does happen.”
But recognizing the value of thorough insurance verification is only step one. You also need to make sure your process is secure enough to prevent uninsured drivers from slipping through the cracks.
Three Ways Your Insurance Verification Process May Fall Short
Despite the prevalence of insurance verification in auto sales, many programs still have gaps that leave dealers exposed to risk. Here are the most common verification failures that could be costing your dealership.
1. Accepting proof without verification
One of the most risky practices is accepting insurance cards or documents at face value. A customer may present what appears to be valid insurance documentation, but without independently verifying the policy’s active status, you’re taking an unnecessary risk.
To cover this possibility, many F&I offices make a call to the insurance company to ensure the policy information is up to date. But when unexpected circumstances arise, such as closing a sale outside of the provider’s hours, they may skip the step rather than hold up the deal.
By waiving the phone call, they risk accepting a document that’s expired, canceled, or even fraudulent. Then, if something goes wrong after the sale and the coverage ends up being invalid, the dealer can be held responsible.
2. Skipping verification for test drives
Test drives are so standard in the car sales industry, it’s easy to forget the level of risk involved in letting a customer take your vehicle off the lot. Cars are heavy machinery, but many don’t view it like that.
Some dealers have a casual approach to test drives, especially for seemingly qualified buyers or during busy periods. This oversight can result in uninsured drivers operating your inventory without proper coverage, leaving your dealership vulnerable to claims.
To account for this risk, many recommend verifying your customer’s insurance not just before the sale, but also the test drive. Even if your dealership has its own coverage, the customer’s coverage can act as an initial line of defense in the case of an at-fault accident. Not only can this protect you from major losses, but it can also help avoid rising premiums from making frequent claims.
3. Failing to cross-reference information
Fraud is on the rise in the auto industry. In fact, Point Predictive estimated that auto lenders faced $7.9 billion in loss exposure due to fraud in 2023.
Because of the outsized threat it poses on the industry, it’s important for dealers to take all necessary precautions to screen their customers before handing over the keys. For dealers, insurance verification is the final opportunity to catch bad actors.
While insurance verification alone will catch a sizable proportion of fraudsters, some sophisticated criminals will still manage to slip through the cracks. By cross-referencing information across multiple steps, such as ID checks and financing applications, you can reduce the amount of undetected fraud.
This includes verifying that the named insured matches the purchaser, confirming that the coverage meets lender requirements, and ensuring that the policy effective dates align with the purchase date. Mismatched names, addresses, or other discrepancies could signal attempted fraud or a soon-to-be-canceled policy.
Taking the Next Step
Insurance verification isn’t just a compliance checkbox– it’s a critical risk management practice that protects your dealership from significant financial exposure.
Don’t wait for a costly claim or a bought-back contract to reveal the weaknesses in your current process. Evaluate your verification procedures today and consider implementing digital solutions that provide both security and speed to your F&I operations.
Want to learn more about how CheckMy Driver can help your business get ahead? Set up a meeting with our team to see it in action.
