By Chris Philips

Insurance add-ons, ranging from MoT repair cover to paint protection, generate significant income and help customer retention, but one provider has a word of caution over commission.

Combine the bone-cutting margins on new cars with the continuing erosion of service and repair work to the independents, and it’s little wonder the franchised sector looks upon F&I as a vital revenue stream.

But that stream could turn choppy. With commission-driven practices in mind, regulators are taking a renewed interest in products which may not be suitable for the con-sumer, but generate hefty bonuses for the sellers.

Though banking is an obvious target, Duncan McClure Fisher, managing director of Warranty Direct, said the regulator’s aim could affect any business involved with financial services. “Some dealers can make quite chunky profits on insurance, but they have to be careful. The way things are going, you can’t sell products which are viewed to have too big a margin.”

His cautionary words follow a pledge by Martin Wheatley, head of the newly formed Financial Conduct Authority, to “change the culture of viewing consumers simply as sales targets”. “We will look at how firms make their money, how they pay their staff and whether they are designing and selling products with customers in mind.”

Though commission revenue plays a significant part in most insurance offerings, it is arguably of less importance than the product itself when it comes to generating business for the workshops and aiding customer retention.

Warranty Direct’s sales are mostly through car owners, but McClure Fisher points out that 60-70% of the company’s repair claims, totalling around £1m a month, are directed through franchised workshops.

It is seeking to extend its ‘direct’ presence in the franchised sector, currently around 7%, with a manufacturer’s ‘white label’ version of its extended warranty “targeting the third and fourth owners of their cars,” said McClure Fisher.

Extended warranty and GAP generally form the core of dealer insurance offerings from Mapfre Abraxas, but it’s been looking to expand its portfolio.

“Products like tyre and alloy cover and MoT insurance are top of the list and they have the added benefit of helping to support customer retention efforts,” said Steve Burgess, head of new business. “If a customer has these additional products and needs to make a claim then their first port of call is the supplying dealer which, as a minimum, is another opportunity for dealers to talk to a customer about other current offers.”

But with F&I expected to contribute £2.5m to its bottom line this year, Vauxhall and Chevrolet dealer Drive Motor Retail is selective about these products. Managing director Paul Manning said: “Offer more than three and we find the customer switches off.” GAP and warranty come high on the list, but Manning said it was difficult to put options such as key insurance or MoT cover to the customer.