Bringing the F&I Providers and Administrators Association (FIPAA) into being was a little like mating elephants: things happened at a very high level, there was a lot of grunting and snorting, and it took two years to get results. But on September 27, 2011 FIPAA was born in Las Vegas, weighing in at a healthy 2,917 pounds. Actually, that is the cumulative weight of the Advisory Council, which is a fine place to begin this story.

The Advisory Council is the body that steers the Association and advises the Board of Directors. The Council met for the first time during the Industry Summit at the invitation of the Board of Directors – David Gesualdo, Adam Kimber, and me. The members of the Advisory Council and the companies they represent are:

Clearly, this is a serious group, and demonstrates the breadth of support for the organization. Pete Biscardi was unanimously elected Chairman of the Advisory Council. Pete states, “The enthusiasm of the working group and the members of the council clearly indicates a commitment to the industry from the highest levels. The efforts of all those involved demonstrates a bi-partisan willingness to create high standards of excellence for our industry.”

Pete agreed to head this working group to address those issues. The first order of business in Las Vegas was to define the scope of membership and dues structure. Without those variables settled, the Association could not move forward.

In the months since the kick-off meeting, Pete’s committee (Brent Allen, Steve Amos, Chris Kerby, and Kelly Price) came to a consensus as to membership levels and dues:

Membership Levels

1. Provider and Administrator (“P&A”) Members
   • Actual F&I product providers (VSC, GAP, etc.)
     • Bright line test: if your company provides a product sold in F&I, you qualify for this level of membership
   • Underwriters of F&I products
2. Industry Members
• Companies that provide services that directly support the business of P&A Members
• Examples would include:
  • Integration providers
  • Menu providers
  • DMS companies
  • Bi-Monthly payment plans
  • Roadside assistance
3. Allied Members
• Companies that touch the F&I function indirectly
• Examples would include:
  • Inspection companies
  • Consultants
  • Lenders

Dues

• P&A Members: $2,000/year
• Industry Members: $1,500/year
• Allied Members: $1,000/year

All companies and individuals that join before the end of the Agent Summit in March will be designated “Founding Members.”

Registration forms are available. Click Here.

Next on the agenda was clarifying goals for the first year of FIPPA’s existence. The initiatives deemed of highest immediate priority were:

Industry Certification Program

Despite everyone’s best efforts, this initiative continues to be called the “Good Housekeeping Seal of Approval.” A more appropriate title will come in time, but the concept is clear: we want to create clear and objective set of criteria that distinguish reputable providers from the fly-by-nights. Suggested requirements for certification include underwriting by companies rated “A-” or better, a certain Better Business Bureau rating, and absence of negative regulatory action. Whatever criteria are decided, certification must be free, or very close to it – we don’t want to create the impression the certification is for sale, or only available to those who are willing to pay for it.

Independent Inspector Training and Certification

Having an objective training curriculum and certification of ability for inspectors is a high priority for the providers that use inspectors in the claims process. Creating the curriculum and a web-based delivery system will easily take a year to complete, but is seen as a natural and important function of FIPAA.

Industry Education and Certification Program

Not everyone is born knowing the difference between Stated and Exclusionary Coverage. And yet there is an immense body of knowledge within the members of the Advisory Council and the companies they represent. Web-based instruction and testing related to industry knowledge was considered a benefit to the industry as a whole, and would provide standardized training of new hires. This training could extend to independent agents in the field, with an additional emphasis on legal compliance – all providers and administrators have a vested interest in having the agents selling their products doing so in a legally compliant manner.

FIPAA Website

It goes without saying that the organization needs a robust website that can facilitate communication and provide “the reputable voice of the industry” to those consumers who seek information about the value of F&I products. Sponsored by P&A Magazine, www.fipaa.org will launch in conjunction with the next board meeting being held at the Agent Summit in Las Vegas, March 12-14.

Two years ago, a number of thought leaders in the F&I industry had the notion of creating an association. FIPAA represents the birth of that notion.

The vehicle service contract industry has been serviced by the independent inspection industry for many years, but issues still plague inspection agencies, service contract administrators, their clients and contract holders. A call for greater accountability is in order.

Vehicle service contract administrators require independent inspections prior to making decisions about the validity of claims for a variety of reasons and circumstances. Some of these reasons include

• verifying the vehicle’s odometer reading
• verifying that an actual covered “failure” occurred
• determining the extent and the cause of damage
• confirming there are no vehicle modifications, commercial use or physical damage

While these are all legitimate grounds for interrupting the flow of the claim process, the assignment of an inspection has historically been viewed as a cause of considerable disruption, expense and loss of productivity for the customer, the dealership/repair facility and the administrator.

There is no questioning the validity of the occasional call for a second set of eyes and ears to verify reported findings, substantiate that the vehicle hasn’t been abused or confirm that some other non-covered condition exists. However, many in the industry have been questioning whether something can be done to further enhance the process to make it more dependable and efficient.

The matter of turnaround time is only one frustration related to independent inspections. Another issue is the credibility and qualifications of the independent inspectors of today. The reality is that not all inspectors are created equal.

As mentioned in previous articles and presented at various trade gatherings, the automotive industry has experienced tremendous technological changes and growth in the last 10 years. These changes have made the world of automotive mechanical repair a much more challenging environment than it ever has been. Service contract administrators often depend on a third party to help them evaluate reported conditions and the reported cause(s) of failures to determine whether a covered breakdown has occurred.

This process can be derailed when an under-qualified inspector is assigned to assess the situation. Sometimes the culprit is a lack of technical knowledge and other times it may be an indifference or inability to produce a quality report of their findings. Either way, the administrator, the repair facility and the consumer are usually caught in an untenable situation when the inspector fails to perform effectively.

Many factors can cause an inspection to go awry and some have nothing to do with the inspection assignment process, the inspection company or the inspectors themselves. In some instances, poor preparation or insufficient processes within the administrator can be blamed. In other cases, it can be the result of poor communication with or from the repair facility.

This occurrence is most prevalent in the area of diagnosis when component disassembly is required and information relating to the level of diagnosis or the stage of disassembly is miscommunicated by the repair facility or the administrator.

In other words, a number of factors can make the inspection process a positive or negative experience.

However, when the snafu is the result of an under-qualified inspector, administrators typically feel they have little recourse. They depend on the inspection agency that assigned the job to instigate corrective measures. In many cases, the agency has little or no leverage over the independent inspector.

When inspection agencies try to hold an inspector accountable (sometimes monetarily), they sometimes hear the following: “I just won’t do any inspections for that (service contract) company anymore” or “I don’t need to work for you anymore, because no one else beats me up like you do”.

Ineffective or sub-standard results in any other trade would certainly result in remedial action and/or loss of work. Apparently this does not necessarily hold true in the inspection industry.

Inferior Inspectors Give All a Bad Name

We certainly have indications that not all inspectors are created equal. However, it should be made clear that there are many very qualified inspectors working in the industry. The point is that the industry lacks standards or criterion to gauge the credibility and qualifications of an inspector.

Inspection agencies can inquire about whether the inspector applying to do business with them is “ASE Certified;” however, that measure alone is not sufficient to identify undesirable candidates.

While the agency is responsible for producing a quality final product (i.e., a written inspection report) that reads and translates correctly and represents the facts by painting an accurate picture, the theory of “garbage in-garbage out” does come into play.

In addition, standards relating to the manner in which inspectors conduct themselves and communicate with the administrator’s dealers and repair facilities must be spelled out and considered as well. Industry experts and inspection agencies largely agree that little can be done and little is done to regulate and control independent inspectors.

As a matter of fact, almost anyone can decide to perform inspections for a living. They can “hang a shingle” and start their business as an independent mechanical inspector. It is likely that hundreds of inspections are being performed every day by less-than-qualified individuals.

Until some sort of certification process is put in place, the overall quality of inspections will continue to decline. This industry needs a sanctioning body similar to the Association of Finance and Insurance Professionals (AFIP), which serves this function for the F&I industry.

Certification will instill the ethical guidelines, training and ongoing support that is necessary. This foundation is tremendously important to the service contract administrator’s bottom line because this is truly where the claim disbursement process starts in many cases.

As in other trades, a certification program would include requirements the candidate would have to meet to become an inspector. This would eliminate someone with limited or no automotive mechanical experience from becoming an independent inspector. Depending on the criterion, applicants may have to apprentice under an existing certified inspector for a period of time.

Short of creating a national inspector certification program, which would require cooperation from a number of service contract administrators and inspection agencies, a recognized industrywide “do not use list” could be developed. An independent group would need to be formed that would establish the benchmarks, review and monitor who and why an individual would be placed on this list.

In addition to independent inspectors, not all inspection agencies are created equal either. About seven to nine major inspection agencies serve the automotive industry, as well as a number of smaller entities that are typically start-ups by former independent inspectors.

As one would expect, some of these start-ups may lack the capital and infrastructure that a larger agency has in place and they often operate under informal processes and procedures. Considering almost all of the inspection agencies use the same pool of inspectors, the real differences from one agency to the other are in the controls, expectations and accountability each agency implements and enforces within their business model.

Technology Supports Value-added Services

While technological advances have certainly improved and sped up the inspection process, the next step is to create more timely and consistent methods to communicate credible inspection findings and other information to the administrator.

We are on the threshold of having the ability to communicate with inspectors while they are still on-site at the repair facility and review the photographic evidence in real time rather than waiting for the pictures to be uploaded to the inspection agency’s website the next day.

The technology is available and only waiting for the infrastructure to be implemented and embraced. In addition to a number of procedural benefits and the reduction of substitute transportation expenses, advances in this area could eliminate the need for certain re-inspections that will result in the savings of thousands of dollars.

Additionally, first-class technology and advanced processes are the initiatives that really allow inspection agencies to rise above the others and enable them to provide more accurate information in a timely manner. This is where agencies can seize opportunities to develop and provide value-added services that reduce the disruption factor, downtime and additional claim expenses that are part of the current inspection process.

There are plenty of examples of why the auto finance industry needs to police itself, but little has been done to protect a key revenue source for dealers. One provider says it’s time for that to change.

Regulations are a fact of life for businesses in the automotive industry, and providers of vehicle service contracts and other value-added products are no exception. Fortunately, we still have time to take the initiative and institute our own oversight procedures before government regulators intervene. The alternative could be detrimental to business.

Consider the current availability of Guaranteed Auto Protection (GAP) in the state of New York. GAP, which is a valuable product for many buyers, is no longer offered because of the inability of GAP providers to police themselves. As a result, the state has regulated the industry to the degree that it is no longer profitable for agents and/or dealers to sell GAP products in the state of New York.

This example illustrates how important it is for product providers to operate transparently under clear rules. The need for self-regulation has grown from a whisper to a roar as it has become easier to get into the business and harder to identify the “bad apples.” Customers are offered amazing deals via the Internet, TV ads and telemarketing, but soon realize that if it sounds too good to be true, it probably is.

Benefits of Self-regulation

We are already seeing some states, including California and Oklahoma, take a more aggressive regulatory stance and more are expected to follow. Businesses in an industry tend to get lumped together and a bad experience reflects negatively on everyone. One company’s failure is bad for all because little attention is given to the specifics of the failure.

If we as an industry demonstrated a willingness to acknowledge and address the reasons for these regulatory actions, benefits would be realized by the product providers, their dealer clients and the final customer.

Product providers are best equipped to establish rules and ethical guidelines because we have a comprehensive understanding of the industry, both from customer service and security perspectives. In addition, rather than dwelling on the negative, it is of paramount importance that we focus on building trust with consumers by promoting proper ways to conduct business. These efforts will enhance the reputation of the industry as a whole.

A self-regulating body has the ability to be proactive and address issues before they become larger problems. Without leadership and oversight, the knee-jerk reactions that occasionally occur now are often extreme and inappropriate. It is also economically advantageous to regulate ourselves versus having the government do it.

Furthermore, self-regulation provides security to dealers and customers. They can be confident the provider will be around to live up to its obligations. We must remember that at the end of the day, we’re nothing more than promise keepers. There are no loss leaders in this business and every deal has to stand on its own.

Self-imposed regulations make good business sense when considering our commitments to customers. They would be able to base decisions on factors other than simple price comparisons, such as quality, service and stability. A more comprehensive understanding of the product and the provider behind it would create more confidence in purchasing decisions and improve customer satisfaction.

How to Create Oversight and Standards

To effectively address these issues, I propose that we create an industry association. It would oversee ethics issues and establish minimum requirements for companies to operate in the marketplace. Companies would receive something like a “Good Housekeeping Seal of Approval” to denote their good standing with the association.

The Association of Finance & Insurance Professionals (AFIP), which is the sanctioning body for the F&I trade, could serve as a template for product providers. Its mission is to give a voice to F&I practitioners, protect the interests of all parties and support the companies that serve the F&I function. AFIP has been well received by both the industry and consumers alike and has improved compliance and raised the credibility of the dealership F&I office.

To be recognized by this proposed association, providers must have the appropriate insurance backing and demonstrate proper relationships with insurance companies. A critical question to ask is, “Who holds the money?” Claim reserve money should be held by the insurance company, not the provider. Too often, fly-by-night companies hold all the money and when they go out of business, the insurance company doesn’t have the funds to cover the claim, leaving the customer stranded. Insurers must also have a minimum AM Best rating of A- (Excellent) or better.

Other factors to consider include the length of time a company has been in business and how customer service is handled. Is there a real person answering the phone? Do customers get a prompt response? The service after the sale is the most important part of our business and establishing standards through self-regulation is the most viable way to preserve the integrity and expertise we have built over many years.

I encourage administrators, agents and dealers to share your ideas and opinions with me about creating an association and establishing a certification process for the industry. Contact me at (800) 548-1875 or at email hidden; JavaScript is required.