SERVICE CONTRACT REIMBURSEMENT INSURANCE
What is a Service Contract Reimbursement Insurance Policy?
While the states generally recognize a service contract as a non insurance product they do have other requirements that a provider (Obligor) needs to satisfy. This applies to all service contract types including Consumer Electronics, Appliances, IoT, Mobile, Home, HVAC, Marine and Automotive products.
Many states now require a financial guarantee to allow a service contract provider to operate in their state. This is to ensure that a purchaser of a service contract will receive the benefit they purchased. Many states have seen service contract providers fail in the past and these requirements have been designed to protect the consumer.
Financial guarantees may include posting a defined percentage (40% or more where allowed) of the gross consideration as security in a claims reserve account, providing a parental guarantee from an entity with net equity in excess of $100m (or other amount) or a Service Contract Reimbursement Insurance Policy SCRIP (sometimes referred to as a Contractual Liability Insurance Policy or CLIP). In the auto segment a SCRIP is generally a viable option to comply with the financial requirements for a Dealer Obligor or Dealer Owned Vehicle Service Contract Program or a Third Party Obligor program.
Here are few state level examples of regulations for service contract providers. The information contained on this page cannot be relied upon or construed as Legal Advice or Compliance Guidance since this is only a very small sample for example only purposes and the regs change on a regular basis:
In some states, a Service Contract Reimbursement Insurance Policy SCRIP / Contractual Liability Reimbursement Policy / Contractual Liability Insurance Policy CLIP is the only viable option available to a service contract provider to comply with the states requirements. Failure to comply with these requirement can be dealt with harshly by the state regulatory agencies.
The Service Contract Reimbursement Insurance Policy will generally need to be issued by an insurance carrier authorized in the state and provide for payment of any covered claims offered in the service contract.
A Service Contract Reimbursement Insurance Policy may also be required by lenders to satisfy their requirements before they will advance on a loan that includes a vehicle service contract or other ancillary product. This includes vehicle service contracts, GAP, etch, appearance protection, tire and wheel, maintenance, key fob, dent and ding, windshield and other similar products.
Different product types may have different requirements on a state by state level: Home Warranty, Consumer Products, Automotive for example.
Michael Frosch, Principal of Personal Safeguards Group, LLC, assists Dealers, Retailers, Marketers, Agents and Brokers in sourcing obligors and Service Contract Reimbursement Insurance Policy / Contractual Liability Insurance Policies (CLIP) providers for their service contract, extended warranty, limited warranty and other warranty and maintenance related programs.
Click here to build a rate for a service contract or limited warranty by entering a few pieces of information. You can develop a rate using a model similar to how carriers and providers develop rates.