Service Contract & Specialty Insurance Resources
01-Sep-2023
New Service Contract & Specialty Insurance Resource
Meramec Secure, Inc.
Fully licensed P&C insurance agency, claims administration, specialty insurance programs, service contract reimbursement insurance and contractual liability insurance solutions. Affinity and membership solutions, retail insurance solutions, product warranty insurance solutions, and service contract financial guarantee solutions. Example solutions include:
- Auto & Homeowner Insurance Cross Sell Solution
- Auto & Home Deductible Reimbursement
- Emergency Lodging
- Homeowner Glass Breakage
- Lockout Service
- Product Warranty Insurance
- Service Contract Reimbursement Insurance
- Shipping Insurance
- Solar Warranty Insurance
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How Long Does it Take to Form a New Service Contract Company
01-Aug-2023
How Long Does it Take to Form a New Service Contract Company
It is easier than you might think to form your own Service Contract Company. The basic elements are well defined and many great resources are available to help you with detailed items.
The best method is to engage with an advisor with experience and connections in the industry to help guide you through the many decision points, engage the right partners for regulatory or legal and help source the right insurance carrier to support your requirements.
You can have a solution up and running in as few as two months or up to 9 months, depending on the roles you in-source versus outsource. A good advisor will help explain the various options and who the best companies are to support a new company.
Many companies simply want to take control of the customer experience and maximize the profit by sharing in the underwriting profits in addition to the upfront commissions. This approach is very easy to set up and the lest time consuming.
Building the proper roadmap in the beginning is the key to launching a new company.
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Who is the Best Company to take Care of Your Auto Customers
01-Jul-2023
Who is the Best Company to take care of your Auto Customers?
If you are a used car dealer frustrated with third-party providers and their claim practices, you may have options to take control of your program with limited complexity.
Many dealers set up their own provider (obligor) or use a third-party obligor, obtain a contractual liability insurance policy (CLIP) from an A-Rated carrier for compliance or lender requirements and manage an in-house program.
It's easier than ever to take control of your service contract program. Great options exist for Independent Used Car Dealers & BHPH Dealers. Ensure your service contract program is aligned with your business objectives around customer care.
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How do Carriers Build Service Contract Prices and Rates
01-Jun-2023
To create a rate for a wholesale cost of a service contract or limited warranty, you need to determine four (4) values:
- Frequency. The Frequency is the percent of the covered items that are expected to have a claim.
- Severity. The Severity refers to the cost to repair or replace the covered product.
- Target Loss Ratio (TLR). The Target Loss Ratio (TLR) refers to the expected utilization of the funds set aside for future claim payments.
- Provider's Fee. This is calculated as a percent of the required claim reserve and should include premium tax.
By entering selected pieces of information, you can develop a rate using a model similar to how carriers and providers develop rates.
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Top Considerations when Forming a Service Contract Provider
01-May-2023
Here are the Top Items to consider when you are evaluating building or in-sourcing a Service Contract Program:
Overall Structure
- Previous articles discuss the various elements of a service contract program, including the obligor (provider), the administrator, the financial guarantee, and the service entity. Options exist for structuring a program with some internal components and some outsourced ones. For instance, using a third party as the obligor (the company making the legal promise to a consumer) has many potential benefits, such as rev recognition and no need to file for a license in many states. Time to market is faster with this option and significantly less expensive in many cases.
Insurance Partner
- The most common method to satisfy state-level financial guarantee requirements for a service contract program is to use a Service Contract Reimbursement Insurance Policy from a licensed and admitted insurance carrier. Multiple good options exist for an insurance carrier; knowing which carriers are better at what programs and structures is extremely important.
Technology Partner
- Many options exist for managing a service contract program, and each provider has unique capabilities and expertise. Knowing the options that make sense is important, and performing a deep dive into the partners to find the right solution is important. Options range from in-house limited functionality solutions to large Enterprise solutions.
Legal and Compliance Partner
- It is important to understand each state's legal and compliance landscape for service contract programs. This includes support in creating the actual terms and conditions, understanding administrator licenses, understanding obligor licenses, understanding seller appointments, and many additional elements. Even if you use a third party for some elements, you should have visibility into the requirements and any changes.
Rate Development
- This includes understanding how to price your program and the various inputs necessary to build a model. Actuarial support may be necessary depending on the program, so knowing the right option is important.
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Retailers and Manufacturers - Take Control of Your Customer Experience
01-May-2023
Now more than ever, Retailers and Manufacturers need to focus on recovering lost margins and enhancing the customer experience by eliminating unnecessary layers and costs related to their Service Contract programs.
With many Retailers and Manufacturers already managing the customer experience with a replacement or repair program, there is no need to insert a third party for administration or for integration with the insurance carrier. A direct relationship is the most cost-efficient method, yet most companies don't realize that this option exists, and unnecessary layers can add as much as 40% to the cost of a program versus a direct model.
It’s never been easier to take control of a service contract program, maximize the value to the customer, and only use third parties for regulatory and insurance solutions.
A properly structured program does not impact revenue recognition, does not require the Retailer or Manufacturer to obtain a provider's license, and still allows the Retailer or Manufacturer to participate in the underwriting profit when the contracts earn.
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With many Retailers and Manufacturers already managing the customer experience with a replacement or repair program, there is no need to insert a third party for administration or for integration with the insurance carrier. A direct relationship is the most cost-efficient method, yet most companies don't realize that this option exists, and unnecessary layers can add as much as 40% to the cost of a program versus a direct model.
It’s never been easier to take control of a service contract program, maximize the value to the customer, and only use third parties for regulatory and insurance solutions.
A properly structured program does not impact revenue recognition, does not require the Retailer or Manufacturer to obtain a provider's license, and still allows the Retailer or Manufacturer to participate in the underwriting profit when the contracts earn.
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New York Service Contract Provider Registration Instructions
15-Apr-2023
New York Service Contract Provider Registration Instructions
Great information from the Department of Financial Services related to Service Contract provider registration..
This page includes details related to the Service Contract Provider Registration Application Form, Default Contingency Plan Agreement and Evidence of a service contract reimbursement insurance policy.
Visit the New York Department of Financial Services for complete details.
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Texas Department of Licensing & Regulations Service Contract Providers FAQ
01-Apr-2023
Texas Department of Licensing & Regulations Service Contract Providers FAQ
Great information from the Texas Department of Licensing & Regulations related to Service Contract providers.
This page includes the licensing process, provider search, difference between a Service Contract Provider, Service Contract Administrator, and Service Contract Seller. Plus the Financial Guarantee requirements for a provider and administrator:
A provider must submit proof of one of the following three forms of financial security:
• A Reimbursement Insurance policy with Texas endorsement;
• A funded reserve account, security deposit, and audited financial statements; OR
• Proof of net worth of at least $100 million.
Administrators are not subject to the financial security requirements.
Visit the Texas Department of Licensing & Regulations Service Contract Providers FAQ page for complete details.
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Example State Regulatory Statutes for Service Contracts
01-Mar-2023
Example State Regulatory Statutes for Service Contracts
To form a compliant service contract administrator or provider involves a patchwork of state regulations. Many states have specific statutes that address registration, licensing, requirements for the customer terms and conditions, financial guarantees, and other items.
Some states have separate and distinct statutes by product type. For example, Florida has unique statutes broken into Auto, Consumer Goods, and Home Warranties.
- Florida Warranty Associations (634)
Here is a link to one state, Illinois, that generally follows the Service Contract Model Act that has been adopted by many states. Each state is different; this is just an example.
- Illinois Service Contract Model Act (215 ILCS 152/)
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What is Product Warranty Insurance
01-Feb-2023
What is Product Warranty Insurance?
When a seller or manufacturer (OEM) wish to offer a longer product warranty but do not wish to retain all of some of the liability they seek options for Product Warranty Insurance. For a single defined cost the company purchases coverage to transfer the risk to a third-party obtaining balance sheet relief.
This is an easy solution to offer a longer limited warranty on a promotional basis or for selected products. The transaction is between the company and the third-party and the end customer has no impact. In most cases, the company still takes care of the customer experience and manages the claim process just like under the "normal" warranty term. The company doesn't need to pay an administration fee or processing fees or go through multiple layers. This streamlines the costs for the company.
Depending on the product type, coverage exists for parts, labor, or parts & labor. The term includes a limited OEM or seller warranty retention, and then the liability falls to the third-party. The obligations for the warranty or service contract are insured by a contractual liability insurance policy or other structure.
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What is a Limited Warranty
01-Jan-2023
A Limited Warranty is a warranty that is provided to a consumer under the Magnuson-Moss Warranty Act.
The Magnuson-Moss Warranty Act is a federal law governing consumer product warranties offered by manufacturers (OEMs) and sellers. The Magnuson-Moss Warranty Act does not require a manufacturer or seller to provide a warranty; however, it defines the requirements if a manufacturer or seller does offer a Limited Warranty.
Under the Magnuson-Moss Warranty Act, manufacturers and sellers of consumer products must provide the consumer with clear and detailed information regarding the Limited Warranty coverage if one is offered. This information directly impacts the rights of the consumer and the obligations of warrantors under the written warranty.
A Limited Warranty is provided at no cost to a consumer by the manufacturer or seller and provided to all consumers purchasing the product in the same manner.
It is important to properly design the Limited Warranty document you provide to the consumer to ensure compliance. Many great resources are available to assist you with designing the Limited Warranty document.
In addition to offering a Limited Warranty, manufacturers and sellers also have the option to offer a Limited Warranty and only retain a portion of the Limited Warranty under their balance sheet. A manufacturer or seller may decide to transfer a portion of the limited warranty risk directly to a third party. In this case, it is an insurance transaction and may be done directly with a carrier operating in this space and may provide balance sheet relief. The following structural options exist for Limited Warranty programs:
A manufacturer or seller may retain the warranty risk internally
A manufacturer or seller may outsource some or all warranty risk to an insurance carrier for a fixed price
A manufacturer or seller may perform consumer-facing warranty claims management internally
A manufacturer or seller may utilize a third-party administrator for some or all warranty claims management
The Magnuson-Moss Warranty Act is a federal law governing consumer product warranties offered by manufacturers (OEMs) and sellers. The Magnuson-Moss Warranty Act does not require a manufacturer or seller to provide a warranty; however, it defines the requirements if a manufacturer or seller does offer a Limited Warranty.
Under the Magnuson-Moss Warranty Act, manufacturers and sellers of consumer products must provide the consumer with clear and detailed information regarding the Limited Warranty coverage if one is offered. This information directly impacts the rights of the consumer and the obligations of warrantors under the written warranty.
A Limited Warranty is provided at no cost to a consumer by the manufacturer or seller and provided to all consumers purchasing the product in the same manner.
It is important to properly design the Limited Warranty document you provide to the consumer to ensure compliance. Many great resources are available to assist you with designing the Limited Warranty document.
In addition to offering a Limited Warranty, manufacturers and sellers also have the option to offer a Limited Warranty and only retain a portion of the Limited Warranty under their balance sheet. A manufacturer or seller may decide to transfer a portion of the limited warranty risk directly to a third party. In this case, it is an insurance transaction and may be done directly with a carrier operating in this space and may provide balance sheet relief. The following structural options exist for Limited Warranty programs:
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What is a Service Contract Administrator License
01-Dec-2022
Several states require a license or some form of registration to act as an administrator for service contracts. This applies if an entity other than the Service Contract Obligor (Provider) is administering claims. This varies by product type (auto versus consumer goods, for example).
For service contracts related to consumer goods, this process ranges from having the obligor submit an acknowledgment form that the administrator understands its obligations under the law ( New York Example ) to a full license ( California Example ).
The process may include a fee to the state, a copy of the terms and conditions from the obligor, a copy of the Service Contract Reimbursement Insurance Policy that backs the service contracts, a list of providers supported, registered agent information, and a completed application. The application includes company information and often includes shareholder information.
The overall process is easy to navigate with the right help. Many great firms exist to assist with the process, and often the obligor will help as well.
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What is a Service Contract Obligor
01-Nov-2022
As you research Service Contract programs, you will hear the term Obligor (aka Provider) as a significant component of the Service Contract process. At the most simplistic level, the Obligor is the legal entity that is issuing the Service Contract and making the promise.
Many states have specific requirements for Obligors, including registration, terms and conditions design & filing, and demonstrating how the Obligor will provide a financial guarantee to back the Service Contract. Each state has its own requirements and varies on a product level, including vehicle service contracts, ancillary auto products, home warranties, and consumer appliances & electronics. Having proper compliance support is very important, and several great options exist to help you with compliance if you choose to form an Obligor.
Forming your own Obligor is not necessary if you wish to design an in-house program. Many structural options exist to take control of the consumer-facing elements while using a third party for the regulatory side and not impacting revenue recognition. This streamlines a program, removes unnecessary costs, and allows the Retailer or OEM to control the customer experience for enhanced lifetime value. It is important to pick the right third-party partner for your business based on mapping out your objectives and the third party's expertise.
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Many states have specific requirements for Obligors, including registration, terms and conditions design & filing, and demonstrating how the Obligor will provide a financial guarantee to back the Service Contract. Each state has its own requirements and varies on a product level, including vehicle service contracts, ancillary auto products, home warranties, and consumer appliances & electronics. Having proper compliance support is very important, and several great options exist to help you with compliance if you choose to form an Obligor.
Forming your own Obligor is not necessary if you wish to design an in-house program. Many structural options exist to take control of the consumer-facing elements while using a third party for the regulatory side and not impacting revenue recognition. This streamlines a program, removes unnecessary costs, and allows the Retailer or OEM to control the customer experience for enhanced lifetime value. It is important to pick the right third-party partner for your business based on mapping out your objectives and the third party's expertise.
WarrantyResources.com is a property of Personal Safeguards Group, LLC. Contact Us with any Questions.
What are the Basic Elements of a Service Contract Program?
01-Oct-2022
The Seller
- This represents the entity actually making the solicitation and sale of a Service Contract. This includes Retailers, Dealers, and Marketers.
The Obligor (aka Provider)
- The Obligor (or Provider) is the legal entity that is issuing the Service Contract.
Many states require some form of registration (licensing), form filing for terms and conditions, financial guarantees, officer and/or director biographical reviews, and other requirements. This is not a one-time event; ongoing reporting and license renewals exist in many states.
This is on a state-by-state basis and varies on a product level. Examples include vehicle service contracts, ancillary auto products, home warranties, consumer appliances, and electronics products.
The Administrator
- The Administrator is the entity providing customer entitlement, claim adjudication, and payment of claims.
Some states require registration of the administrator and some form of financial guarantee.
The Financial Guarantee
- Most states have requirements for how an Obligor (Provider) must provide for the financial guarantee of a Service Contract.
Financial guarantees are intended to protect the Contract Holder from the financial failure of the Obligor (Provider).
Financial guarantees may include cash reserves, bonds, a parental guarantee from an entity with substantial and defined net worth, or a service contract reimbursement insurance policy (contractual liability insurance policy).
The Service Entity
- The Service Entity is a company the Administrator utilizes to perform repair or replacement services in fulfilling the obligations of the Obligor in the Service Contract.
Some states require registration of the administrator and some form of financial guarantee.
The Contract Holder
- The actual Contract Holder (or Consumer) that the Service Contract is issued to and who is the owner of the covered product.
Process Flow for Service Contract Elements
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