Tag Archives: warranties

How Technology Is Changing Warranty

Let’s take a brief trip down memory lane.

In days past, whenever consumers wanted to make a major purchase—say, for a large appliance or the latest electronics—they had to leave the house and visit their local retailer. If they were concerned about the well-being of their new investment, they’d add a warranty plan once their transaction was complete. If something with their new fridge or stereo system went wrong, they’d need to pick up the phone to schedule a service visit.

Things have changed. Let’s take a look at just how much technology is influencing purchasing habits and changing the warranty experience for consumers, retailers and providers.

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Today, when consumers need to make purchases both big and small, they’re often opting to make them online. For big box retailers, incorporating additional warranty protection on their websites to accompany those purchases is no sweat; they’ve got the capability and budget to do so. But what about smaller retailers?

According to a report by CBRE Group, about 30% of e-commerce retail is sold by small and midsize companies. While many of these companies might want to offer online consumers the benefits of product protection like their big box counterparts, integrating third-party warranty protection with a retail e-commerce platform can be cumbersome. But some providers have cracked the code and developed apps that allow smaller retailers to level the playing field and easily establish and manage valuable warranty programs.

Another technology solution being explored is blockchain. For as long as anyone can remember, returns, warranties and service contracts have required proof of purchase. Blockchain capabilities can eliminate that need by decentralizing record-keeping, so all relevant parties can instantly access a digital proof of purchase, as needed. Innovative companies are already jumping on board and using blockchain to improve industry collaboration, increase customer satisfaction, boost efficiency and reduce prices.

Make the Connection

As the Internet of Things grows and consumers replace their obsolete, non-IoT devices, the true benefits of connectivity will continue to be revealed. For example, smart home technology will take the guesswork out of claims. Service providers and technicians will no longer be forced to rely on a customer’s diagnosis of the problem, because devices will accurately relay data about malfunctions or damage in real time.

See also: How Tech Is Eating the Insurance World  

Administrators will be able to better identify issues and potentially help the customer find a resolution via phone or chat, without a service visit. If a service visit is needed, the customer representative can approve repairs and estimate out-of-pocket costs in advance simply by using the data already available.

But before the advantages of this new technology can be enjoyed to their fullest, there are some obstacles to overcome. The complexity of connected devices can be a lot to tackle for many consumers. Without the help of a professional, new device setup and network connections can be time-consuming.

Recognizing the opportunity for increased customer satisfaction, streamlined processes and lower costs, service contract providers are stepping up their game to offer plans that not only cover repair and replacement but tech support, as well. This kind of 360-degree service plan can help simplify the consumer transition to the fully connected home experience.

Go Custom

Thanks to the intimate connection to products and data offered by IoT, the opportunity to customize service contracts and protection programs has never been greater. Driven by constant data collection, warranty analytics can be employed to create extended protection plans that categorize failures, identify customers who are most affected by these failures and key in on potential causes. These “intelligent” plans can help determine and customize proper coverage levels guided by each customer’s risk profile.

The opportunity to apply the data extends beyond the connected home to products on the road. Now with the help of analytics, the failures, causes and costs that affect drivers most can be identified to help create intelligent protection programs for automobiles.

Known as telematics, these systems facilitate the transmission of vehicle diagnostic data. Telematics can record a vehicle’s condition to provide quick, efficient analysis that can isolate an issue before it becomes a real problem. This technology can also simplify next steps by alerting the provider to the issue and directing the vehicle owner to the closest repair shop with relevant parts in inventory. This kind of efficiency can help consumers remedy potentially dangerous and costly situations early on, while also reducing expenses for service contract providers.

See also: Common Error on Going Digital  

While some may long for the old days, the benefits of new technology offer a chance to look on the bright side. For providers, retailers and customers, advancements have changed the warranty protection experience for the better and will continue to do so for years to come.

Representations and Warranties Insurance: How It Can Help Close Business Deals

A Representations and Warranties policy provides coverage for losses incurred as a result of breaches or inaccuracies of the representations and warranties made in business transactions.  A seller typically makes numerous representations to the buyer and warrants to the buyer critical facts about the business.  These attestations are an inducement to the buyer.  While parties both hope that the representations are accurate, disagreements often arise.  Such disputes routinely occur in connection with financial condition, accounts receivable or intellectual property.  Disagreements can also arise over the scope of representations and warranties made, as well as the duration and amount of a seller’s indemnification obligations.

Often, when a transaction is nearly complete, last-minute issues can create an impasse.  It is at this critical juncture that R&W insurance can be utilized to remove obstacles and  facilitate closure.  The preemptive purchase of R&W insurance can remove fears regarding certain representations that might lead to litigation after the deal closes. An R&W policy can also eliminate the need for a buyer to rely on the seller to make continuing indemnification payments—meaning a buyer wouldn’t need to chase down sellers who might be foreign, insolvent or long gone.  In this regard, R&W policies provide both sides of the deal with peace of mind that each party will receive what they believe they bargained for.

HOW are R&W Policies Structured?
Each agreement is unique, and an R&W policy is tailored to meet the specific needs of each deal.  Depending on the client’s needs (whether the buyer or seller), R&W policies can be structured to achieve various things.  These goals might include: (1) increasing the amount of indemnity available, (2) providing a “backstop” to the indemnity already available, (3) extending the expiration of the indemnity, (4) eliminating the need for collateral for contingent liabilities, (5) providing “ground up” coverage to replace an indemnity, or (6) increasing the scope or breadth of an agreed indemnity.

WHEN should parties consider the purchase of an R&W policy?
Most often, R&W policies are purchased in a mergers-and-acquisitions context.  However, R&W policies are also secured in connection with restructurings, insolvencies, liquidations, financings or loans, or in connection with the licensing of intellectual property.  In these situations, an R&W policy adds value as it can eliminate or reduce perceived or identified exposures and can address disagreements on the allocation of legal or financial risk for certain perceived or already identified exposures.  It can also give one buyer a competitive edge over another.

For example, consider a transaction where the buyer requires that a seller retain liability equal to 30% of deal consideration in respect of breaches of representations and warranties, while the seller is only willing to assume liability for up to 10% of deal consideration.  An R&W policy could provide coverage for the buyer for loss resulting from breaches exceeding 10% of deal consideration up to a limit of 30% of deal consideration. 

Or consider a situation where the seller’s weak financial position causes the buyer to require that security be posted for seller liability for breach of any representations and warranties.  An R&W policy could be designed to cover the buyer for loss resulting from breaches only if the seller is unable to meet the liability it has agreed to assume under the sale agreement.

WHO Buys an R&W Policy?
Buy-side policies make up the majority of R&W policies.  A buy-side policy enables the buyer, should a breach occur, to recover losses directly from the insurer without having to make a claim against the seller, often without having to locate and pursue the seller.  Such a policy provides the buyer with assurance that the value of the acquired business will not be reduced by unexpected liability.  Further, buyers can utilize R&W policies to improve their bargaining position by using the coverage to enhance their bid by reducing the indemnity ceiling and required escrow.

A sell-side policy provides indemnification by the insurer for defense costs and loss resulting from claims made by the buyer for inaccuracies in the transaction that are the subject of seller representations and warranties.  Simply put, a sell-side policy also enables the seller to walk away from a closed deal confident that the proceeds it receives in the transaction will not be diminished by subsequent legal claims and claw-back.  A sell-side policy provides a structure so that the seller can make a clean break once the sale has been executed by reducing or eliminating the need for an escrow account.  This is of great value to the seller as the seller can distribute more of the proceeds from the transaction more quickly, thereby expediting shareholder return (and the purchase of the yacht or sports car that the seller has always wanted).

If I have a client who wants to consider R&W coverage, what information would they need to provide?  Generally, underwriters can prepare a non-binding indication with a minimal amount of key information.  This information would include (1) the draft purchase agreement, (2) the draft disclosure schedules, and 3) the most recent audited or reviewed financials of the target.

Socius has conferred with Ambridge Partners LLC, a leading managing general underwriter of Representations & Warranties Insurance (R&W), to present this article.