Understanding Risk Management Options for Warranty

September 01
11:35 AM - 12:20 PM

Jimmy Bynum
Alexander & Preston

Understanding Risk Management Options for Warranty: An Executive Discussion

  • Jimmy Bynum, President, Garde Solutions

Warranty and extended protection plan contracts sold by dealers or manufacturers to buyers of commercial products such as construction equipment can increase resale value, raise customer loyalty, boost uptime, and lower operating costs. But before extended protection plan sales can begin, the advantages and disadvantages of various risk management options must be considered.  Business-to-business and consumer extended protection plans are valuable risk management mechanisms that not only help manage the cost of ownership, but support a more integrated relationship between the dealer and customer. When optimized, these plans create a circular economy, providing both direct and indirect value for manufacturers, dealers, and customers.

When it comes to managing the liabilities associated with warranties or extended protection plans, there are three options:

  • Leave it on your balance sheet, essentially self-insuring; 
  • Insure it through a third-party insurance company; or 
  • Establish a captive insurance company. 

This session explores the advantages and disadvantages of each option and draws insight from experts in the field to provide a complete picture of the ways to manage liabilities.

It is important to stress that each company will have different goals and risk management needs. To help guide them and determine which option makes the most financial and strategic sense, each company should look to their corporate strategy and answer a few questions: 

  • What are the main financial drivers?
  • What is the risk appetite?
  • What level of risk management expertise exists within the organization?