What is a Service Contract Obligor

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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Retailers and Manufacturers - Take Control of Your Customer Experience

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.

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