Car Insurance Companies and Vehicle Manufacturers on Extended Warranties

Car insurance companies can help automotive manufacturers in the provision of extended factory warranties on vehicles to gain and retain market share with little or no increase in vehicle costs and without increasing financial risks, says vehicle insurer Innovation Group assistant executive Trevor van Rensburg.

Many automotive manufacturers are now offering warranties for five to six years or 150 000 km that are higher than the industry-standard three-year or 100 000 km warranties to entice new buyers and win market share in a highly competitive market.

“To cover the increased risk of providing unlimited cover beyond the time frame in which they have long-term experience . . . and without sufficient historic claims data, manufacturers may need to increase vehicle prices to mitigate risks, which would be counterproductive to the goal of gaining new buyers,” says Van Rensburg.

Extended Warranties

However, by partnering with specialist financial services providers that have an established record and significant experience in managing risks and claims on extended vehicle warranties and finance, automotive manufacturers can offer extended warranties on their vehicles without increasing their risks or the price of the vehicles.

Most generic aftermarket extended warranties only cover damages up to a certain limit, which can result in customers not enjoying full coverage.

“However, car manufacturers must maintain the goodwill of their brand; therefore, unlimited damage cover, similar to that provided under the standard three-year or 100 000 km warranty, must be provided to ensure that the automotive brand remains highly regarded.”

The sustainability of extended warranties hinges on effective risk management and mitigation through professional processes, rather than on price increases, says Innovation Group automotive managing executive Ricardo Coetzee.

“Using the expertise of car insurance companies with long-term experience of extended warranty management enables automotive manufacturers to provide the quality of cover that customers expect over a longer horizon,” he explains.

Further, providing extended warranties as standard on all new vehicles also reduces the costs of providing extended-warranty cover and ensures consistent customer experience throughout the warranty period, improving customer satisfaction, says Coetzee.

“While the risks of extended warranty coverage have reduced, owing to the quality of vehicles manufactured, inherent risks remain. These are most effectively managed through experience and expertise, such as managing claims over this lengthy period and ensuring that claims funds are managed effectively to remove the risk of financial exposure arising from claims beyond the expertise of automotive manufacturers,” he notes.

Sustainability is critical to balance the costs and risks of extended warranty offers, with brand loyalty and customer satisfaction arising from the security provided by these extended warranties, concludes Coetzee.

This article appeared on Engineering News on 08 November 2013.