While many states recognize a service contract as a non insurance product they do have others requirements that a provider needs to satisfy to offer programs in their state.
Most states require some form of a financial guarantee to allow a service contract provider to operate in their state to ensure claims are paid and refunds are processed for the consumer. Historically many service contract providers have failed and these requirements were created to protect the consumer.
Financial guarantees may include posting a percent (as much as 40%) of the gross consideration as security in a claims reserve account, providing a parental guarantee from an entity with net equity in excess of $100m or a Contractual Liability Insurance Policy (CLIP) (sometimes referred to as a Service Contract Reimbursement Insurance Policy SCRIP).
In some states, a Contractual Liability Insurance Policy CLIP is the only viable option available to a service contract provider to comply with the states requirements. Failure to comply with these requirement can be dealt with harshly by the state regulatory agencies.