Service Contract Company Forming and Operating a Service Contract Company

What is a Service Contract Company


The following offers a very high view of entities and elements involved in a Service Contract Company process. This is intended as a summary view to frame out several high-level components.

Seller

This represents the entity actually making the solicitation and sale of a Service Contract. This includes Retailers, Dealers and Marketers.

Obligor

The Obligor (or Provider) is the legal entity that is issuing the Service Contract. The requirements for forming and operating vary by state and product type.

Many states require some form of registration (licensing), form filing for terms and conditions, financial guarantees, officer and/or director biographical reviews and various other requirements.

Example product types include: vehicle service contracts, ancillary auto products, home warranties, consumer appliance, electronics products, other consumer products.

Examples of state information for a service contract company or provider. These regulations are subject to change and additional items may apply. It is important you review the latest information with appropriate legal and regulatory specialists.



Financial Guarantee

Most states have requirements for how an Obligor (Provider) must provide for the financial guarantee of a Service Contract.

Financial guarantees are intended to protect the Contract Holder from the financial failure of the Obligor.

Financial guarantees may include cash reserves, bonds, a parental guarantee from an entity with substantial and defined net worth or a service contract reimbursement insurance policy (contractual liability insurance policy).

Administrator

The Administrator is the entity providing customer entitlement, claim adjudication and payment of claims.

Some states require registration of the administrator and some form of financial guarantee.

Service Entity

The Service Entity is a company the Administrator utilizes to perform repair or replacement services in fulfilling the obligations of the Obligor in the Service Contract.

Contact Mike Frosch, Principal of Personal Safeguards Group, LLC for more information on forming and operating a Service Contract Company.