As a retailer, you
know that extended service or warranty plans are a natural product offering for
your business. They’re both comforting to consumers and profitable from a
business perspective. But how much do you know about how your warranty programs
work? Who are the players involved and who’s responsible for the various
elements in fulfilling the plan? What’s your return on investment?
Understanding the life cycle of your warranty plans not only impacts your
customers and profit margins, but also your brand.
Start Here
Filling in the family
tree of a warranty program can be a confusing process. Who’s responsible for
what, when and for how much can be seen as a burden that many retailers choose
to disregard. But, unless you know the answers, you’re leaving your store and customers
at risk.
An easy starting point
is uncovering who the insurance company is that’s covering your plans. The
insurance company, or underwriter, is the one who insures claims liabilities
from the warranty contracts. It’s important to look for insurance companies
that are well-managed and well-capitalized because they are truly the
foundation of your plans. This is the company that you’re building your
reputation on when claims need fulfilling, even if your business fails. This is
the group that needs to be trusted, vested and insured so you and your
customers can have peace of mind.
Next Steps
A service contract
provider is the company that is legally and financially obligated to repair or
replace the customer’s covered product. This company is your business partner.
They create and administer customized extended service plans on your behalf to
meet your operations’ needs, customer expectations or product requirements, and
in return, collect a fee for their services. Full disclosure of costs and margins
is important because once plans are agreed upon with the service contract
provider your store is able to mark them up accordingly or offer them to
consumers at recommended retail prices.
If you’re not sure
what you’re paying for, you have every right to ask your service contract
provider a few questions to level the playing field:
1. How is your cost divided between insurance and
administration?
2. What is each entity’s profit margin?
3. What is the program loss ratio, both overall
and by product? If your loss ratio is very low it should give you the
opportunity to lower prices to sell more ESPs, be more competitive or
collect more profits and put them in your pocket.
4. Am I going to receive all the information I
need on a regular basis to ensure I am getting the best price and product
compared to the market?
5. Do you participate in a profit sharing program
with your insurer?
6. Is my program compliant to protect my
company’s brand reputation? Have all statutory compliance and filings been
addressed?
7. If there is an insurer and/or re-insurer
involved, what is the financial strength rating of each and who is your
contact at the insurer?
The service contract
provider and warranty administrator (or third party administrator) are usually
the same organization. As a customer facing group, it’s critically important
that your store has access to a contact person and your customers find it easy
to work with this organization. They are also responsible for training your
sales representatives on the ins and outs of selling warranty plans and how to
facilitate a claim.
Since you’re paying
the administrator a fee, you want to align yourself with well-respected
companies that work hard to earn trust and deliver on expectations — for your
store and your customers. Working with administrators that allow communication
with all parties, including the underwriter, keeps the relationship in check
and ensures plans operate smoothly and adhere to specific terms and conditions.
Additionally, administrators contract with repair facilities to repair or
replace covered products, so easy access and open lines of communication are
essential in this relationship to ensure the parties involved — you and your
customers — get what they’re paying for.
The Customer’s Role
The service contract
is an agreement between the service contract provider and your customer. The
service contract terms and conditions may state that for service or to report a
claim, the customer should call a separate number to contact the warranty
administrator. For your store, keeping the administration and underwriting
under one umbrella provides a hassle-free arrangement that ensures warranty
plans deliver positive results for customers throughout the life of the plans.
Is Your Plan Working?
While creating an
effective warranty program certainly takes a little work, becoming educated
about the process and asking the right questions to ensure you’re partnering
with the right service contract provider is critical to the success of your
business. Bottom line, knowing who the extended warranty players are and how
they impact your business can mean the difference in profit and loss — of
revenue and customers.
No comments:
Post a Comment