White Paper - Researching and Selecting an Automobile Extended Warranty Provider (Part 1)

Warranty Direct White Paper - How to Research and Select a Warranty Provider

As more consumers learn that there are alternatives to the high price of dealer sold extended warranties, the number of companies and web sites offering them have exploded. How do you know which companies you can trust? How can you research the companies? What resources are available to you?

Warranty Direct, the oldest and largest provider of direct-to-consumer automobile warranties provides you this comprehensive guide to researching and selecting your warranty provider. We understand how difficult a process this can be. We welcome your phone calls to discuss the issues below in even greater detail.

Warranty Pricing…

A question we are often asked is why there is such a wide range of prices for extended warranties. The best advice we have heard to date is this, “Good extended warranties are not cheap; cheap extended warranties are not good”. As you read this White Paper, you will see the many areas that coverage costs can be lowered. Bear in mind that lower cost coverages cover less and will leave you paying out of pocket on most claims.

The Warranty Company…

Warranty Seller – In most instances, this company is a broker offering coverage(s) from regional, third-party warranty administrators. Once the warranty is sold, you will not deal with the seller again. You want to make sure the warranty seller remits payment to the warranty administrator and your coverage is in force. Warranty brokers typically look for the cheapest coverage available so their markups can be higher. Often, they are not concerned with the quality or level of coverage. As they frequently change the companies they represent, they do not develop long-term business relationships that are most beneficial to consumers.

Few warranty sellers are direct administrators of their warranty coverage. Purchasing direct from an administrator is beneficial because you know where your money is going. You maintain the relationship with the company throughout the life of your extended warranty; in other words, the direct administrator will sell you coverage, provide customer service, offer financing and handle all your claims. Buying direct from an administrator also makes it easier to properly research the company that will be responsible to pay for your repairs over the next 3, 4, 5 years or longer.

Administrator – This is the company that actually issues the warranty and is responsible for paying any claims. This is the company that should come under the closest scrutiny by consumers. Buying coverage direct from an administrator offers the most security as your money goes directly to the company responsible for fulfilling the obligations under the warranty contract. You will also be able to obtain the same coverage they sell through car dealers and avoid the car dealer’s markup. Administrators will offer you pre-sale counseling and after sale support.

There are many warranty administrators (national and regional) with varying business models. You should select a company that offers their coverage through many different channels and not just the Internet. Like insurance companies, the larger the pool of warranty holders, the more likely the company is financially stable and has adequate funds to pay future claims.

Regional warranty administrators tend to be small and have a smaller base of customers. National warranty administrators will offer coverage through car dealers, financial institutions (banks, credit unions) and may even handle warranty programs for manufacturers. With a larger, more diverse customer base, these companies are more financially sound. When a warranty administrator handles coverage for banks, credit unions and manufacturers, you can bet those companies did a lot of research before selecting a warranty partner.

More and more states are regulating the sale of extended warranties. Larger states like California, Florida and New York have licensing requirements and have done the homework for you. If a company is licensed in all of these states, that is a good indication of a stable company and one dedicated to compliance.

Internet Only Warranty Companies – Based on our 14 years of selling coverage direct to consumers on the Internet (and 28 years through car dealers, banks and credit unions), we have seen companies with this business model come and go. While the Internet allows consumers to buy products at more affordable prices than traditional selling channels, companies that only do business on the Internet present a risky business model.

Internet only companies are loosely regulated and some are not regulated at all. As they do not sell through car dealers or other channels, they are able to bypass the regulatory requirements that more and more states are implementing to protect consumers. These regulatory requirements most often deal with the company’s financial health.

By only selling warranties on the Internet, these companies are not able to amass a large customer base and often are not able to set aside appropriate funds to pay future claims. They take in money on Monday to pay claims on Tuesday. Couple this with a lack of regulatory over-sight and you have a recipe for disaster.

About Warranty Direct

Founded in 1980, Warranty Direct is the direct-to-consumer division of one of North America’s leading providers of service contracts and extended warranties for automobiles. Through its automobile extended warranty portals, www.warrantydirect.com, www.carwarranty.com, www.warrantyinfo.com and www.warrantydirect.ca , Warranty Direct leads the industry in efficient and expedited claims handling, impeccable customer service and a technology infrastructure that far surpasses the industry standard.