What is a Profit Share




What is a Profit Share


A profit share is an arrangement with the insurance carrier or service contract obligor (provider) that allows the manufacturer or retailer to participate in any remaining funds in the claims reserve account after the contracts have been partially or fully earned.

A typical structure is to determine how much is needed to fund future claims and then add a small buffer. This is the claim reserve. Then you add the claim reserve and the fee (including taxes) a carrier takes and add that to the claim reserve to yield the gross amount the carrier receives.

If the future claim per item was determined to be $100 and you added a 10% buffer ($100/.90), the total is $111. If the carrier adds a 10% fee ($111/.90), you have a $12 fee plus the $111 claim reserve for $123. If the claims come in as expected, you will have approximately $11 per contract remaining in the reserve. This remaining amount is then subject to negotiating a profit share.

Profit shares exist when a program can support it based on the size of the program, the carrier fee, and underwriting performance.

For additional information on Service Contract, Limited Warranty, and Specialty Insurance Programs visit Meramec Secure.

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