Here are the Top Items to consider when you are evaluating building or in-sourcing a Service Contract Program:

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.

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.

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.

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.

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.

Tags: service contract, obligor, provider, administrator, clip, scrip

This represents the entity actually making the solicitation and sale of a Service Contract. This includes Retailers, Dealers, and Marketers.

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 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.

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 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 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

Tags: obligor, administrator, service contract, clip, scrip, service contract reimbursement insurance policy, contractual liability insurance policy

Tags: administrator, administrator license, service contract