contractual liability insurance policy

Developing and Pricing a Product Warranty Insurance Program




Developing and Pricing a Product Warranty Insurance Program





Developing and Pricing a Product Warranty Insurance Program


Additional information on manufacturer warranty insurance is available at Meramec Secure.

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What is Default Warranty Insurance



What happens to the warranty if the manufacturer goes out of business?


Many manufacturers offer long limited warranties, with 10-years for LED or 25-years for solar panel warranties being common.

These long warranties are very attractive and help justify a long-term return on investment for the end purchaser. Often, these programs are leased or financed, so the systems must perform properly for the length of the warranty.

The problem is customers want to know what happens if the manufacturer goes out of business and no one can stand behind the warranty.

Options exist for a low one-time cost to obtain default insurance to back the warranty if the manufacturer goes out of business. This is not a service contract, it is an actual insurance policy to "backstop" the manufacturer's warranty if the manufacturer goes out of business.

The process doesn't change for the manufacturer, who continues to manage their warranty, customer experience, and claims management. There is no need to pay a third party to insert themselves between the manufacturer and the end customer.

Additional information on manufacturer warranty insurance is available at Meramec Secure.

WarrantyResources.com is a property of Personal Safeguards Group, LLC. Contact Us with any Questions.


Example State Regulatory Statutes for Service Contracts



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



What is Product Warranty Insurance?


When a seller or manufacturer (OEM) wishes to offer a longer product warranty but does not wish to retain all or 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.


Product Warranty Insurance Overview


Additional information on manufacturer warranty insurance is available at Meramec Secure.


What are the Basic Elements of a Service Contract Program



The Seller
    This represents the entity 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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