Contractual Liability Insurance

Service Contract

Service Contract CLIP

Contractual Liability Insurance Policy - Service Contract CLIP

While many states recognize a service contract as a noninsurance product, they do have other 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. These requirements were created to protect the consumer from a Service Contract Provider failure.

Financial guarantees may include posting a percent (as much as 45%) 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 CLIP / SCRIP.

Example State Requirements for Service Contract Providers:

A CLIP is generally a viable option to comply with the financial requirements for a Third Party Obligor, Dealer Obligor, and Admin Obligor program. Examples of products that may be covered by a service contract backed by a CLIP include:

  • Appliances
  • Electronics
  • Internet of Things (IoT)
  • Exercise Equipment
  • Sporting Goods
  • Furniture
  • Jewelry
  • Automobiles
  • Parts & Accessories
  • Boats/Jet Skis/ATV/Motorcycles
  • Recreational Vehicles
  • HVAC

In some states, a Contractual Liability Insurance Policy CLIP is the only viable option available to a service contract provider to comply with the state's requirements. The state regulatory agencies can deal with failure to comply with these requirements harshly.

Manufacturer's (OEM) In-House Service Contract Program Video

Example of How to Build a Price for a Contractual Liability Insurance Policy CLIP

Building a contractual liability insurance policy rate CLIP often utilizes a straightforward method involving four key pieces of information: frequency, severity, target loss ratio, and fees. This Rate Builder allows you to plug sample pieces of data to generate a sample rate. This is an example only and does not constitute an offer to sell or purchase insurance.

Example Rate Builder