What is the average attach rate for both, especially in the subprime market?

Traditionally, my dealers aim for over 50% VSC penetration. In the subprime market, it mostly depends on the bank's eligibility. If the bank allows additional funds for the service contract, the take rate is nearly 100% in the subprime world. GAP insurance is similar, with a 35% to 40% penetration rate for finance customers in the traditional space. In the subprime space, it depends on whether the bank allows the advance for the additional financing amount.

Why does the administrator exist in the first place? Why isn't it just the dealer that issues or drafts a contract with the car buyer and quotes a price for servicing?

That's a great question. In the past, there used to be what they called dealer-owned programs, which is what you're talking about, where the dealer keeps track of all the money and pays claims out of it. Over time, from a compliance and regulatory standpoint, that became very hard to manage. The necessity of having a third-party administrator became more important because it ensured that claims were paid in accordance with the contract provided to the customer. If the dealer was holding all the money, they would need an administrative staff to handle all the phone calls from service departments. They would also have to manage taxes and regulatory aspects, such as investment income. It gets quite complicated if the dealer tries to manage those programs on their own. It's worth paying the extra money to an administrator to handle all that. Additionally, the government regulation part becomes much easier with an administrator keeping track, as you can make investment income on the money while it's sitting there, and you need to track whether that's capital gains or ordinary income.

Who prices the contracts? For instance, if it's quoted at $1,000 to me as a car buyer, is it the administrator or the dealer who sets that price?

The administrator usually starts the process. They calculate through actuarial means what they expect the claims payments to be based on past experience with specific models and makes. They aim for a 50% loss ratio, expecting to pay out half of the contract's cost. As a dealer, I adjust prices based on how the book is performing in different regions. If claims are running at 80%, meaning we're not charging enough, we adjust the pricing, and the administrator implements it to align with national standards.