by Steven Friedman
In the aftermath of the Uniters North America acquisition of the assets of Global Care Solutions (the successor to Stainsafe), hundreds of retailers and millions of consumers were left without coverage. This has served as a painful reminder to home furnishings retailers that they need to evaluate current programs to try to avoid a similar fate for you and your customers.
Are you in compliance with your states insurance laws? Are you protected if your current provider fails? Will you be left holding the bag?
Here is what you need to know.
Protecting a piece of furniture from staining is significantly different than protecting it against defects in workmanship or accidental damage.
- Are you are selling insurance?
If your warranty covers accidental damage, you may be.
A licensed insurance agent is required to sell these products, and the insurance company may need to be admitted in your state.
- Are you selling service contract (extension of manufactures warranty)?
If the warranty covers manufacturing defects (frames, foam resiliency, fabric wear), this could be a service contract. This does not require an insurance agent; however, there are a lot of regulations ensuring that funds are available to pay future claims.
Make sure your protection company has adequate reserve or is backed by an insurance company.
- Are you selling a product warranty?
If the warranty covers only items that the products can prevent or correct, then that is probably a product warranty.
However, the price charged the consumer may not be varied based on the value of the furniture. Otherwise it may be interpreted as extended service policy.Where does this leave the furniture retailer?
If you are offering a product, there are no regulations on you or your protection company. You just need to ensure that your protection company is financially able and willing to service the warranties over the terms of the warranty.
Service providers can cease servicing warranties at anytime, even after purporting to have third part insurance. That is why verification of coverage is critical.
If you are large enough, insist on owning the toll free line that the protection company uses for you and your customers. That way if the lines are shut off, you can answer them. You will still be out of pocket for the coverage you already paid for, but at least you can service your customers.
If not, shorten the term of your warranty. That way should your lines be shut off the time your customers is impacted is lessened. If you sell a service contract or you vary the price you charge your customers. Make sure you are in compliance with your state regulations. If your service provider is not in compliance, remove coverageIf you sell insurance, unless you are prepared to license people in your operation, immediately change to either of the other two options.
There are a lot of other options available to all retailers large and small, self warranty, funded reserve, joint funding, captive insurance, some of which may or may not work for you, but with the profits in these programs they are worth exploring.
Some due diligence and a little skepticism are very important.
About the Author: Steven Friedman is currently a partner with B2B CFO, USA's largest CFO firm focusing on mid-market companies. From 1989-2007 he was with Stainsafe.