What’s in a name? DOWC® is not just what we do, it’s who we are. A DOWC® dealer “owns” every aspect of the F&I products offered.
This opportunity is available through our traditional dealer obligor and reinsurance structures as well, but a true DOWC provides even greater advantages, most significantly elimination of liability to the dealership.
Dealer Owned Warranty Structure Benefits:
- Domestic US C-corp. formation (as opposed to foreign domicile)
- Dealers own the program and are in control of program specifics (terms, reserves, deductibles, coverages)
- Alternative to NCFC’s for larger dealers as DOWC structures have no premium limit
- No 8886-form filing is necessary
- No 953(d) re-domestication election necessary
- No foreign domicile fees
- All US banks will open accounts (unlike limited options for a foreign corp.)
Not all DOWC providers are the same. DOWC® has many advantages over our competition, including:
- Dealers can control underwriting profits from day one (non-custodial). Actual reserves are available to invest as the dealer sees fit so long as statutory regulations are satisfied. Other providers claim availability to funds when they actually only allow access to a portion of the retail premium dealers would have access to anyway and NOT the underwriting reserves.
- Contract liability insurance policies (CLIPs) are available through First Colonial Insurance Company, a member of the Allstate family of companies.
- DOWC® works with dealers to customize their menu of F&I offerings.
What are the tax differences between a DOWC and a reinsured structure?
- Most reinsurance companies are formed outside of the US and make the 831(b) election to be taxed as a micro captive. This means only investment income will be taxed in the current tax year and underwriting profits will flow to shareholders and only be taxed when profits are distributed.
- Alternatively, DOWCs are domestic companies whose revenue meets the IRS definition of an insurance company. As a result, DOWCs file an 1120-PC and are only taxed on a pro-rata amount of earned premium. One of the distinct advantages that DOWCs enjoy is that the dealer profit (commission) is a write off (expense) to the DOWC and creates a long-term loss carry forward. As a result, DOWCs do not generate a tax liability for many years. Once these companies are generating positive income, and assuming the 831(b) election is stable, filing for the election is one of the options DOWCs utilize to exempt premium on a go-forward basis.