Example Solution - Vehicle Service Contract
The following are examples of how a Contractual Liability Insurance Policy may be used for Vehicle Service Contract Programs through a dealer.
In the first example, a Third Party Obligor, Dealer Owned Warranty Company or Administrator Obligor a reserve account is set up to hold loss reserves. The fee, which may cover the administrator, the obligor and the cost of the CLIP, depending on what services are required by the dealer. The reserves may sit in a trust account or be backed by other forms of collateral. The business may also be reinsured and the reserve funds set for the benefit of the captive and held or securitized by the initial carrier.
The second example is a straight Dealer Obligor program where the dealer pays a fee and retains all the remaining funds. The dealer, subject to credit review, will only have to set up a small amount in a reserve and once the small reserve is met no additional reserves are needed.The dealer is responsible for paying all claims. The dealer uses the provider for certain administration services and receives a CLIP for compliance purposes.