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Smart Shopper Extended Warranties
2873 messages, Last post on Dec 02, 2009 at 2:13 PM
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Edmunds article: Third-Party Extended Warranty Scams
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Before I start, I have to confess that I'm an actuary for one of these "aftermarket" companies that offer extended service contracts (ESC); I might be a little biased, but I'll try to keep it to a minimum. I won't say who I work for, but our company has been in the ESC business for over 20 years and the insurance industry for over 80 years; our parent company has been around for over 125 years. I say this because so many people in this forum seem opposed to getting an aftermarket ESC because they keep hearing other people say the aftermarket producers go bankrupt all the time. In reality, there is very little chance that we or any of the other major aftermarket producers will go bankrupt (sure, there's still a chance, but then there's also a chance that the auto manufacturer will go bankrupt, and that small chance probably wouldn't stop you from buying the car). We spend a great deal of time researching and analyzing data to properly price our product. And we only sell it through reputable auto dealerships ( I'll explain why shortly). A few auto manufacturers, e.g. BMW and Hyundai, actually use "aftermarket" companies to provide their factory extended service contracts. I'll admit, a number of "fly-by-night" operators went belly up and their ESCs wound up being worthless, but these can basically be broken into two groups: The "we're cheaper than the others" Newbies and the Internet Based Companies. The Newbies were generally subsidiaries of other companies, not necessarily insurance or automotive related, that thought that there was a killing to be made in the ESC market. With little or no experience in this type of market, they priced their product to get the business, and then... they reaped the whirlwind. Every insurance department in the country has a two-part mandate about pricing: Price it fair, price it adequate. These guys were severely underpriced and wound up getting way more business than they could cover. They subsequently folded and left their policy holders high and dry. Some blame falls on the insurance departments for letting these rates through, though the "warranty" business is not under their purview (see below). The automotive dealerships were also partly to blame for this situation since the vast majority of ESCs are sold through them: They saw a chance to make more profit and jumped on it. Most of them learned their lesson, however, and have gone back to using only the tried and true. The Internet Based Companies were bound to fail. How many of you would insure property you've never seen or inspected for someone you've never met? It's an underwriters worst nightmare! People could go out to the internet and buy a relatively inexpensive ESC and then proceed to rebuild their piece of junk car. We have an expression for this in the insurance business: Adverse selection. Either you select the risks or the risks will select you. And these guys got "selected against" big time. Which brings me back to why we (the majority of aftermarket producers) only sell through reputable auto dealerships. You can understand now why we don't sell on-line. We don't sell directly to the public through insurance agents either, since most agents aren't mechanics; they really can't tell if a car is a reasonable risk or a ticking time bomb. And we don't sell though those "buy here, pay here" dealerships, the kind that pop up on a street corner only to disappear 12 months later (talk about adverse selection!). Additionally, the purchase of the ESC has to made within a certain time period after car purchase, generally a month or so. If the customer decides they want one later, they must have their car inspected and certified at selling dealership, usually at the owner's expense. One more thing before I forget: The difference between "extended warranty" and "mechanical breakdown" is purely legal. "Mechanical breakdown" is actually Mechanical Breakdown Insurance, MBI. Since MBI is insurance, it can be regulated by the different state insurance departments. On the other hand, a warranty is not technically insurance, so it isn't regulated by the insurance departments. When you get right down to it, they provide the same thing, but have different legal connotations. I'm not a lawyer, so don't ask me to explain.
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Replying to: riskadverse (Aug 16, 2007 8:26 am) If you follow the industry, know someone who has experience with an aftermarket contract and done your homework (and it saves you a significant amount of money) then perhaps an aftermarket is a good decision. If on the other hand you have no knowledge, recommendations (other than the dealer) and the OEM fits within your budget then I'd go that route.
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| Warranty Gold was in business for 25 years before it went under-taking people's money with it. The more companies I check out, the more I'm starting to think 25 is about the lifespan of a service contract company. Affiliation with a bigger company seems to have little effect for the consumer. Warranty Gold was affiliated with a giant company until about a year before they went under. Companies are bought and sold all the time, the consumer often gets caught in the undertow. | |
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Replying to: msw66 (Aug 16, 2007 9:33 am) True, to a degree. But a dealer is not going to alienate his customers just to maximize his profit on ESCs. If the dealer sells contracts that cause nothing but problems for his customers, he winds up paying for it in the end and he knows that. It's just bad business choosing your ESC provider on price alone. What I'm really trying to point out here is that if you're planning on getting an ESC, don't be scared off from getting one from the dealer just because it's not a factory plan. Know what you want/need in an ESC and what you're willing to pay for... no different than when you're getting ready to make the car purchase. |
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| I have no idea where you got the idea that Warranty Gold was around that long...they started in 1997. And National Warranty was a very small insurance company. Warranty Gold sold mostly through the internet. But your point is well taken, the independents do come and go. | |
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Replying to: msw66 (Aug 16, 2007 9:33 am) I would agree - you hear stories of folks complaining about stuff not covered by ANY extended warranty when something fails, but never hear of folks getting told the OEM plan they purchased is now no good. While every part is not covered you never have to worry that the dealership will not honor the OEM plan. We had a GMPP years ago on my wife's car which broke a rocker arm. The arm was covered, but they wanted up to pay to clean out the metal shavings and other things that occurred when the arm broke. We refused just based on the absurdity of them expecting us to pay - none of this would need to be done if the covered part had stayed in one piece! I think HondaCare is one of the better OEM plans out, yet at least one local dealership (owner by a big chain) does not even offer it at all, then have some other warranty they offer. You can't tell me it is not because HQ dictates it due to higher profit margin over HondaCare. A local BMW dealer has had at least two difference after-market extended warranty companies in the last few years What does that say to the folks that purchased the first plan? That they didn't like it and went with someone else - or just make more money off the other plan. I don't care how much research you do and how many folks you talk to up front, any of these companies not factory backed CAN and HAVE left folks without coverage. I always tell folks decide if you need coverage or not, and if you do then only by an OEM plan if that is available. Anything else is just a big risk. Dennis |
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I know I've read somewhere that WG was 'in the warranty business for 25 years'. Naturally, I can't find it now. I was probably getting it from a site advertising for Warranty Gold. I found this article interesting: http://www.sptimes.com/2003/10/12/Business/Warranty__no_guarantee.shtml It illustrates why I don't hold much store in AMBest's ratings. Dennis: it's a good thing GMPP didn't learn about the dealer trying to charge you extra-it's against the rules! I can submit to GMPP for added time; I can't charge the customer. A dealer could get into hot water pulling that trick. |
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Replying to: riskadverse (Aug 16, 2007 8:26 am) Total bull. Look at API's website - http://www.apiprotection.com/aboutus.aspx They were founded in 1984 and there are OVER 300,000 contracts and GPR claims in default. See the bankruptcy site at http://www.apibankruptcy.com/ If you happen to be a creditor there will soon be a deadline for filing claims and it may be worth your while to attend the September 5th meeting... but reality is your money is most likely gone. "Which brings me back to why we (the majority of aftermarket producers) only sell through reputable auto dealerships. You can understand now why we don't sell on-line. We don't sell directly to the public through insurance agents either, since most agents aren't mechanics; they really can't tell if a car is a reasonable risk or a ticking time bomb. " Again... this all sounds great unless you are someone who knows how this business really works. First "reputable" doesn't mean jack. All that matters is loss ratio. A dealer could be as dirty as they come but as long as they perform you and I both know you'll embrace them like a brother. API wasn't pulled down by irreputable dealers. For that you would need to look to the owners of API (who are also the owners of Intercontinental Warranty Services www.iwsgroup.com). "Since MBI is insurance, it can be regulated by the different state insurance departments. On the other hand, a warranty is not technically insurance, so it isn't regulated by the insurance departments. When you get right down to it, they provide the same thing, but have different legal connotations." This part is right. The Illinois Dept of Ins sued API in June to stop them from using the dealer reserves to pay anything other then claims. Because of the laws in IL, they lost that case and the assets of the company can now be used to pay the Hooters bills, the Lexus and Porsche leases etc -- and then a few claims of course.... See http://www.ilnb.uscourts.gov/JudgeDoyle/Opinions/Automotive_Professionals.pdf
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Replying to: uvebeenscrewed (Aug 20, 2007 8:49 am) I would bet "reputable" in their book is a dealer that sells lots of policies for them - that is probably the only qualification. Dennis |
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| Has any one heard of Certifed Car Care Warranty? or Any one have there warranty now? Suppose to be good company? | |
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